What is going to be the story of 2011? As we head into the New Year many commodity charts are sitting at, let’s just say extreme highs. I don’t think it matters so much as to whether a pattern is at an all time high as much as it is at long term channel resistance. In the case of Copper, I’ve shown you how it was wrestling with very long term parallel warning lines. Is it more important that Copper is at an all time high or the fact it has taken out the resistance line that stopped the action from going higher in 2008?
How about Cotton? That chart has gone absolutely parabolic to the point it is at the upper end of its own long term channel. We haven’t even mentioned charts like Gold. But we know that always flirting with a new high. What about Palladium? What about Corn? I think you get my drift. I look at the 3 C’s which are Copper, Cotton and Corn.
Then I look at the banks. As you know I thought we would have seen the high in the equity market back in April. I wasn’t exactly right. The SPX didn’t hit the new high until November. But this isn’t about me. In case you noticed, I’m sure you have its banking and housing which are not even close to their April highs. Does that concern you? It concerns me and I think about it every day. Here’s my concern. How could it be that commodity prices are going through the roof while housing and banking haven’t even taken out the April sequence? In one sense, part of the market hasn’t taken out the April highs. As far as banking goes, April was the high for the year.
I always thought that in every business recovery, its housing that comes back first. It’s a simple formula. The building trades go back to work and fuel the rest of the local economy. Electricians, plumbers and carpenters buy groceries, go to the cleaners and pay accountants too. There is a trickle down effect. Economists are looking for unemployment to go down in order for people to start buying houses again. But how are they going to buy houses again if no one is ready, willing and able to build them? The other problem is I always thought you only see inflation at the back end of a prosperous business cycle. The patient is out of intensive care, that much is clear. The holiday shopping season shows things are better, at least for the 90% of Americans who are working. So how can commodity prices being going through the roof if we haven’t had a normal cycle of business prosperity?
Do you see my problem? While I’m as optimistic about the New Year as I am every year but this is also the time of the year where I take inventory. I think this inflation problem is misplaced. It’s real, but it’s not normal or where we should be at this stage of the business cycle. Something is not adding up. I think this is going to be one of the major stories of 2011. Another story is going to be the Greenback. With a high of 121 price is going to square with time in about 7 months from now. Depending upon whether it becomes an inversion it will be the first real opportunity for the long bear market in the Greenback to end. If it were to end and it is at new lows, how low does it have to be and what kind of headlines is it going to produce? If the Dollar were to bottom that would mean there is the potential for Gold to top. I know this sounds preposterous to some of you but if you look at the range of a Gold continuation chart we do have a top of 873 which a low of 252 for a range of 621. On the continuation chart Gold will be at 621 weeks off its bottom more or less around the same time the Dollar will be at its square of 121 months off its top. You ask 100 traders, analysts or just interested parties when we can get final reversals in Gold and the Dollar and nobody knows. I don’t know. But when you use Gann price and time squares, at least you have the possibility of knowing when an important turn can materialize. What people don’t understand about Gann is it’s not so much a predictive method and when the market actually elects one of these symmetries we know it when we see it. All we can do at this point is anticipate the possibility. These major cycles don’t have to turn at these points, but they could. Knowing that can give you an incredible edge.
As we head into the New Year I’ve heard one reading on CNBC on Friday that said we are at 63% bulls. That is very high. We now have readings in the most indices that suggest markets are incredibly ripe for a turn. What I’m watching in particular is the XLF which bottomed in August with a low of 13.29 at 133 days. With the same low at 13.29 we are another 132 calendar days off that low on Tuesday. I’m not saying it’s going to validate but it’s at the exact right point in time for an important validation reaction.
If the market can top here, given the fact the inverse relationship with the Greenback is still in force, what is the potential for the Dollar to turn back up? Actually, it’s pretty good. Our Dollar chart this week has a cluster of various channels in different time frames. The bigger declining channel is the bearish channel from last June. The mildly up sloping bull channel is holding the price action right now. To me, this represents the potential of a C wave up in an overall bear market rally. It hasn’t shown that it wants to give us that last leg up but it can’t be ruled out. Finally, the brown line is the channel line on an hourly chart. The bottom line is the pattern came to the lower end of the near term bullish channel, held on Friday and turned up on Sunday night. If we get follow through, all of the calculations I have for a change of direction in the equity market could validate this week. Is this the same old song and dance? It possibly is because we’ve just come out of a 3 month sequence where the market showed nothing but underlying strength in negating every single calculation it has come up against. But markets don’t go on forever and conditions are once again ripe for a turn right here.
Dan Collins and I will have a discussion about price and time squaring at the New York Traders Expo on Presidents Day at the New York Marriott Marquis. Those of you who are new to Gann or have always wondered how to use this seemingly mysterious methodology can’t afford to miss this presentation. You can probably look back on your market career and think of only a handful of presentations that have profoundly affected what you’ve become. This presentation, given that it is likely the only one at the Expo of its kind has that kind of potential to point your game in a new direction.
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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.