It was one of the more interesting weeks of the year. We had a trifecta of news events that even got me interested. On Friday the jobs number was +151k/9.6%. Don’t expect the rate to drop anytime soon given any confidence will only bring more people back into the realm of being counted. See, that’s what happens when they don’t give you a realistic number to begin with. If they actually reported unemployment to be 19%, just to pick a number, a dip to 16% would be progress.
It was reported that indices didn’t move much on the number because the range on the Dow/SPX was really small but I suppose they weren’t watching the HGX or BKX. Housing and banking are finally on the move and the BKX finally moved beyond the ridge since the middle of September. Housing broke out of what could be a triangle and one more accumulation day and it will be on an all around breakout.
But there are numerous conditions standing in the way. Most notably is time window season. There are possibly more time windows lining up in a daily and weekly combination here than at any time since May 2006. I know many of you are looking for a crisis, a terrorist attack or a return to the debacle of 2008. The chances of a return to panic of 2008 are small. I’m not saying we’ll never have a panic but if we didn’t have one in the seasonally weak September/October period chances are it isn’t happening this late in the year. Those of you looking for a panic, like Yankee fans, should wait til next year. I don’t have a crystal ball so you never know what might happen in the war on terror but there have been warnings circulating around on the Internet. I have no control over those things, so I don’t think about them. Finally, what’s wrong with a good old fashioned shake out that scares the pants off everyone?
Why does it always have to be an all or nothing market? The last time we had this many time cycles coming due in May 2006 optimism and euphoria were extreme. Everyone thought the only way was up. After the turn, by the time the SPX bottomed in June and tech bottomed in July 9 (for a double bottom) sentiment was the exact polar opposite. It totally flipped in 6 weeks! Right now we are 161 weeks off the October 2007 top, 89 days off the July bottom and right up on 610 days off the March 2009 bottom.
Then we had this little issue about an election last week. We didn’t immediately see the buy the rumor sell the news kick in and the reason for that is likely the bigger time windows that are a little off from Election Night. Here’s the important thing to take away from the election. As the week progressed word hit the airwaves that Obama was open to extending the Bush tax cuts. That news was met with happiness if not euphoria. It’s the first real time I’ve seen happiness on television. There are 2 things at work here. Everyone should have a degree of glee when the government decides not to raise your taxes. Economically speaking, it may be an important motivation for the business community to be able to clear up any uncertainty concerning the tax environment over the next year or two. Everything helps these days. However, there is no such thing as happiness when it comes to the stock market and patterns are extended the way they are now. You can be happy when you take your profits to the bank. You can’t be happy because you think the extension of the Bush tax cuts is necessarily going to extend this rally. When it comes to market sentiment, that’s a serious error in judgment.
But be advised what can be happy today can get happier tomorrow. What it means is risk is high. But it’s a strange market because the one area that isn’t extended is banking. It’s extended after 3 days of gains but not like technology. Look to the time windows this week to see if markets turn happiness to euphoria and whether or not the big candle reversal materializes.
Finally, we have QE2 which we track with our chart of the US Dollar. As far as the Dollar goes, the EUR-USD broke through very important overhead resistance in the form of the bigger mid line. I would’ve thought it would have struggled more under the line. But Thursday was the big piercing of the line and Friday was a reversal back below it. In the near term that’s likely to be bearish for the Euro but in the long term prices have now shown ability to breakthrough. They will likely do so again. But in terms of price and time, the Greenback is due. It has the kind of under the hood readings to give us a trading bounce. In terms of the Gann calendar and square of 9 the Dollar is ripe.
Several commodity charts are ripe for reversal, namely Copper and Palladium but they aren’t going by themselves. The tide is going to carry 80% of all boats so if we suddenly start seeing chart like these reverse we can take things more seriously. We also want to see the EUR-USD stay down which I think is of smaller to intermediate degree.
The stock market has continued to violate all of the near term price and time relationships discussed here in recent updates. That’s important as well. The initial indication is something larger is developing and it isn’t bearish. But that doesn’t speak to the fact a shake of the trees could be right around the corner. The bears had a major opportunity to take markets down numerous times in the past 2 months and whiffed every time. It was the seasonal time for markets to drop. That doesn’t mean they can’t drop now, they can. However, the probability that any drop now is going to lead to a crisis is small. It’s likely been put off to the next weak seasonal point on the calendar, next March. Markets usually hit important tops or bottoms around March or October. As we’ve seen, they usually crash around September and October with important turns in March. We have a series of windows here which we’ll be watching very carefully. But if we do get a reaction the kind of reaction I’ll be looking for is something similar to the May 2006 sequence.
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