The last week of a year that turned out better than most people could have expected. To the 90% of Americans who are working, its time to count your blessings. For the 10% who aren’t hopefully it’s the darkest before the dawn. Truth be told, 2010 could’ve been a whole lot worse for all of us. We are two years into a bull market. That’s right, what else would you call it? The perma bears would have you believe disaster always lurks just around the corner.
Heading into September with the banks breaking down, things did look scary at that point. But it ended up being the turning point of the year. We are not exceptionally bullish here but we just haven’t had a reason to be bearish. Since October, we’ve had turn windows with very little readings and for those of you who don’t know what that means here’s a quick lesson. In my first book we introduced a lot of people to the fact markets can be timed. In fact they must be timed. We were a little ahead of the curve because about a year and a half after that book came out, CNBC reported that if you bought an SPX fund in 1998 you had nothing to show for 10 years of buy and hold. We talked about timing windows and had you read my book you would’ve learned how to recognize the top of the bull market in 2007. Considering the financial destruction that followed, it makes that book timeless.
However, what we’ve done since that time is develop a methodology to judge the strength of a pivot to determine if a specific time window is going to validate. We just came out of a sequence in the last two months where one time window after another failed to give us the ‘under the hood’ readings that could give us the kind of turn we had back in 2007.
But now the time windows have expired but the readings are finally showing up. Last week, we had an interesting event. There was a rare total lunar eclipse right on the Winter Solstice and an event such as this hasn’t happened in the modern stock market era. Yet the perma bears were out telling you of the financial destruction to follow. All you have to do is look at your Gann calendar to realize the Winter Solstice is one of those times in the year where markets can change direction. At the same time, it’s very difficult to get that change during the holiday season because the holidays are seasonally the most bullish time of year and trading desks around the world keep skeleton crews. There’s just not a lot that goes on the last two weeks of the year.
But there are areas to be concerned about. Last week we talked about Copper. Its sitting at all time highs but because of the trajectory of the parallel warning line has a little room to go higher. I think tests of this nature can play out over the whole first quarter of the year. If you noticed we also have charts like Corn and Cotton battling very serious resistance levels. We are starting to get readings there as well. Corn is interesting because it has great underlying strength but the near term readings suggest we can turbulence right here. It’s the same for Cotton. Heading into the New Year, think about how many products will be affected by the 3 C’s. That’s Copper, Cotton and Corn which gives us a wide range of products affecting building materials, clothing, breakfast cereal to pet food. Oh yeah, I forgot to mention oil sitting at 90 or whatever it is today. But we at least partially cracked the code on Heating Oil in our weekend Futures Update which is one of the most difficult charts to comprehend. Heating Oil is also sitting on the potential of a change in direction.
A theme is emerging here. These commodity charts are at the cusp of breaking out into a place on the chart where there’s no turning back as far as inflation goes. If they continue unabated, it can lead to the H word down the road. We also have very interesting calculations which could come to a head in the Greenback and precious metals markets by the middle of the year. You need to keep reading every week. I do have my first Gann article coming up in the February issue of this magazine and I will be talking about the price and time square relationships in these arenas when Dan Collins and I convene at the New York Traders Expo in February. It’s right in the middle of the afternoon on Presidents’ Day so you’ll have the day off and no reason not to be there. The point is we have some very serious relationships coming due in 2011.
Getting back to the commodities, we are building to some serious inflationary issues if the patterns don’t start backing off immediately. Once the cat is out of the bag, it’s hard to stuff him back in. Once bigger resistance levels break, it’s hard to get prices back to where they were until such time as the cycle runs its course.
But the stock market is showing readings across the board for the first time in a long time. Technology has the kind of readings that could give us a turn. The SPX and Russell 2000 do as well. As we scale down to individual sectors, we’ve had a great run in biotech lately. Unfortunately the best part of the move happened in 2 days so if you snoozed you lost. Our subscribers were advised of a great turn at the beginning of December for AMGN which had a classic Gann price and time relationship at the turn. It was already doing very well by the time the BTK exploded higher. But now the BTK is also close to an important landmark on the chart. The banks have done well and they are also close to an important point on the chart as well.
What the chart below shows us is the hourly action on the NQ. It turned lower last week as prices hit 616 hours and 157 points off the November low. It is also starting to exhibit a wedge condition where you can see converging trend lines. By Sunday night it was already trying to turn back up.
So what has been leading is coming to important forks in the road. Conditions are once again extremely ripe for a turn. Maybe not this week, but when everyone comes back to work. Given the readings are starting to build up they can persist due to the very powerful underlying conditions. Conditions like these can easily persist until the holiday season is over.
Now just because there could be a turn does it have to mean the bull market is over. In New York we are also going to discuss some of the longer term implications. There’s some perfect Gann symmetry hidden in these charts that I’ve exposed that tie into long term cycles. Every time the markets have turned you have a segment of the trading community telling you the sky is falling. Our take has been what’s wrong with a shakeout that scares everyone out of the shoes which is not a repeat of 2008? At Lucas Wave International we don’t think every turn is the end of the world. We have some very sound cyclical research to back that up. We never guess and anything written is backed up with very strong technical reasoning.
Click chart to enlarge
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.