Round one was a direct hit for the November time windows. We had the SPX and others top on Friday the 5th which was 609 days off the first March 6th pivot. We had the NDX and others top on Tuesday the 9th which was 610 off the 9th of March. It seemed like the entire world of commodities topped that day too. Monday is day 620 off the March 6th round and since day 618 was Saturday, it’s the first day after the next round of pivots. It’s entirely possible we get another turn right here.
With all of these windows materializing at the same time; I didn’t even get to 161 weeks off the October 2007 top or 1108 days off the NASDAQ top on October 31, 2007; it’s impossible to say we’ll go straight down. What I can tell you is that after covering at least 20 major charts from the NASDAQ to the BKX to Cotton, Copper and Soybeans is that I haven’t seen this many important calculations on so many charts all at the same time. Want a sample?
On the December contract for Corn we have a low of 343 and high of 603, when we take the difference of the square roots of those numbers, we get 6.03. On the Wheat continuation we had an initial low on August 18 and the high last week was 818. That’s right 8/18 to 818. On the Cotton chart we had a reading that works if you understand a Gann Master 12 chart. We have other Gann readings on Rough Rice. I could go on and on. If you don’t understand the significance of square root relationships you should go to www.lucaswaveinternational.com and take a subscription. Most of the industry is clueless to these conditions but they really do drive markets. You just have to know where to look. The calculations are trying to tell us something.
The point here is the inflation trade got really loud the past couple of weeks. So loud, in fact that China finally had a 5% drop on Friday which was in the 1108 window of the NASDAQ drop. The leader of this round of inflation has been Corn which based right on top of intermediate level median lines as well as a 38% line retracement of the whole bear move. The longer it based, the better it was for traders who were playing the inflation trade. But we finally had a dose of technical damage which now hurts at least the near term prospects for inflation. I just told you why.
If the inflation trade takes a break that means the equity market does as well. All we really know at this point are 2 things. Markets have responded finally to the cycles and the banking index is following along. The BKX never came close to July highs let alone the April high. Now prices have broken below the median channel for the second time since August. The best analogy for the banks is they’ve been skating on thin ice for about a month and this sort of thing can’t go on forever. The only good thing I can say about the banks is they haven’t been the downside leader. But for markets to turn around and head higher the banks are going to have to remain neutral.
We know the Dollar is in rally mode, the inflation trade is taking a break as is China but none of these charts trouble me as much as the long bond. On Friday, one of our key time window dates, may have turned out to be a watershed date in bond market history. Michelle Caruso Cabrera corrected stated that the QE2 purchases by the Fed may be one of the more important dates in the history of the bond market, little did she know it was also one of our key market timing dates as well. If the Fed was the buyer of these notes it looks to me like they might have been the only buyer and the buyer of last resort. With all that buying going on prices took a nose dive.
We all know we are supposed to have an inverse relationship between equities and bonds. Money rotates into and out of these areas on a regular basis. But I think one of the prevailing sentiments of the crowd is as much as the market whines about the accumulation of debt it seems to keep going up as the Dollar falls. But I think that works as long as they know the Chinese keep backstopping the system. Well, the fact that we owe, owe and owe some more to an emerging superpower with an opposing ideology never occurred to anyone yet. We’ll probably wake up to that fact if and when we ever have to confront Iran, but that’s a topic worthy of a book, not just Monday morning column.
Now that I got your attention it looks to me like the Chinese were mysteriously absent from this week’s auction activities. I also think that’s going to make people very cranky, especially given the fact China may be giving the signal they want to put the brakes on their own economy. The bottom line is the Fed may have been the only buyer on Friday and they certainly didn’t have the power to keep the market up. What we may get from all of this is a bond market that finally confirms a top with interest rates on the rise. But interest rates have been higher, that’s not the problem. The problem is the perception by the market that nobody other than the Fed is going to come in and buy these notes.
We’ve managed to avoid the P word in this column for the most part this entire year. You know my take. We had a panic in 2008 and that’s usually a generational event. We usually don’t get panics so close to each other. No, I don’t think another panic is around the corner, not yet anyway. We’ve dodged a bullet this year. The worst time of year for equities has passed without any disasters and it likely means a Merry Christmas for the first time since 2006. Its next year I’m concerned about. The long term Dollar chart has a high at 121 and we’ll be squaring 121 months come next summer. There’s a good chance we could finally end the long bear market in the Greenback at that time. But at what cost? We know the back end of bull or bear market is where the biggest move materializes. If that’s the case we can finally see the Dollar coming to new lows and perhaps even hit the lower end of the pitchfork in the next year. For now that doesn’t apply. I don’t think the Dollar is done with its bounce but its long term implication of these charts I’m most concerned about.
Once again, we are one of a handful of outposts in the world teaching this kind of technical analysis. Do you want to rely on news events and stay hopelessly behind the curve or finally get in front?
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Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.
