It's not three days or three weeks but now over three months. Go back to the end of August when the banks looked like they were ready to join BP at the bottom of the Gulf. It appeared like the classic setup for a September and October to forget.
Then it never happened. Markets rallied on a cluster of the 89-day window off the April high and a range square time at 77 weeks for the Dow. I’ll explain that one more at the bottom. Whatever the case, markets have been higher ever since. But how many times has this market had the opportunity to tank but wouldn’t or couldn’t? Let’s look at a few.
First of all the big time window season which is now complete had the markets pass the 161 week windows off both the Dow and NASDAQ high from 2007. Then we had the 610 day calendar window to the March 09 bottom which came around the same time as the 89 week window.
OK, let’s say you know nothing about market timing and following sentiment is your fancy. A case was made that September and October was one of the biggest buy the rumor rallies we’ve seen in years. All we needed to see was the sell off after the election.
I made that case, too. To a degree, several days after the Republicans handed the incumbent leadership a huge defeat markets did start to sell off. It materialized as a result of the 610 day window in early November. That didn’t work either as we saw new highs this past week. If this is what the bears have, it’s not very much and some point we have to acknowledge something larger and different is going on.
I’m not here to tell you we are in a new secular bull market but I am here to tell you to look back at the 1970’s. The market actually turned up for good in January 1975. I don’t really care that Elliotticians tell you the bull market started in 1982. The fact of the matter is that markets turned up before the 2nd oil crisis, Jimmy Carter, stagflation, 20% interest rates and the Iran hostage crisis. All of those events were still in the future. I can go back to the 1930s and tell you that Adolf Hitler, Pearl Harbor, Auschwitz and Hiroshima were still in the future. The market bottomed for good before all of the above. Now it’s true that 1942 saw a serious retest of the 32 bottom and the real bull didn’t kick in until 1949. But you shouldn’t think that just because the Dollar and Euro take turns doing swan dives, unemployment stubbornly persists and we have the largest debt in the history of the planet that it means the Dow is going to 5000. You can send me the emails but stock market history suggests these arguments hold no water.
I will tell you the same thing I have for the past year, at some point in time we can get a retest of the 2009 bottom but it can take longer and be more drawn out than any person who invests in, trades or follow financial markets can perceive. I only deal in reality and that reality is right now. Reality to me is repeated failed attempts to go down.
Last Monday I was watching the most hyped football game of the year and after seeing New England pile it on I started surfing the dish looking for something more interesting. I would have locked in on reruns of “I Love Lucy” if they were on. Instead it was the President announcing a deal to extend the Bush tax cuts. You see, it was the exact 161.8 week marker off the NASDAQ top and when windows expire, the news event just magically appears. I had my news event!
The next thing I wanted to see was the sell off after the event. We know markets turned up the week before last off the November pullback so it was reasonable to think we could have yet another buy the rumor sell the news event working. Markets gapped up on the open and spent the rest of the day drifting lower. It appeared we did have a reversal. But on Wednesday the whole event was negated, again.
It shouldn’t be lost in all of this that the April top was taken out. Since it’s a top which materialized on the SPX/NDX range square with time, which was a good top. It would take a market with really good underlying strength to take it out. The end of the week brought us to the 161 day calendar window to the July bottom and the early part of this week we have the 161 day trading window to the April top. Since the bigger windows (161 week and 610 days) have been negated, I’m almost not even willing to acknowledge these intermediate to smaller time windows. I know I told you that if market survived last week they likely survive through the end of the year. I can see us coming off the high but from where we sit now, just 2 weeks short of Christmas; any real selling is the extreme lower probability. One of the reasons is after this week; people start to shut it down for the holiday. Then we have the holiday euphoria.
As you know, I’ve stated that I’m very concerned about the cycle situation in the 3rd quarter of next year. Potentially, that could be a time where we make a run at retesting the March 2009 in some way. But like I said, we need to deal with right now. We just started a new Mercury retrograde period and the highest probability outcome is a choppy market. I think we could have days where it appears we are reaching for the stars and other days where it looks like Europe is about to come apart at the seams. The Greenback begins the week with an upward bias. But the banks have broken out of their range and you know that as long as the banks stay elevated, it’s hard to get any real downward momentum on equities.
The story coming into the week is the decent performance of the BKX and is finally in the channel which formed over the summer. This week is likely to be a test of the rising channel line.
I am going to have a story coming up in the February issue of Futures magazine about price and time squaring. More information will be forthcoming but it I’ve been scheduled to discuss this article and other things Gann with Dan Collins at the New York Traders Expo on Presidents Day. Those of you near the New York area will get a good look into one of the most powerful market timing tools available. We’ll talk about events like that Dow turn in August, I believe that square relationship is the biggest technical factor in the underlying strength of the rally. We’ll discuss other key relationships that are affecting current market conditions and how you can learn to identify them on your own.
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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.