I suppose we got the day off we didn’t get for New Years. If you were wondering why we didn’t get a three-day weekend for New Years is there is a rule that states markets have to be open to close out the accounting period if the end of the month is on a Friday. I love the markets but as intense as it is I always enjoy these three-day weekends. But these periods always give me a chance to reflect on where we are and where we are going.
Last week we talked about the fact the NDX set a new high above 2007. What that did technically is put us in a position where the NDX is up continuously for the past 8 years. I don’t know if you want to call it a secular bull because we won’t know for certain until certain technical factors appear. We’ll discuss one down the page. We had a 5 year bull interrupted by a cyclical bear from 2007-08. The NDX topped on Oct. 31, 2007 and bottomed on Nov. 21, 2008. Really, that’s all it was. Seems like a lot worse, doesn’t it? Then we consider the rest of the market with the original top on July 13, 2007 in the Russell and the final bottom in March 2009. People need to realize it’s a process more than a line in the sand.
But I was quoted in the January issue of this magazine that we should have choppy markets for several months but any major move would be to the upside. That may be in the January issue but I said it over four weeks ago. So far they’ve been more up than sideways and we still have good internal strength. The latest violation came last where the banks traced out a 54.23 high in exactly 5.428 weeks. The week ended higher and since it was the banks you have to conclude that nothing bad happens to financial markets when banks go higher. As it turns out, the violation of the latest sequence is also a violation of the 89-90 day sequence off the late August low for the BKX. It finally has a lane to go higher.
I’ve heard some analyst suggest markets HAVE TO correct because they haven’t. Let’s understand something here. Markets don’t have to do anything. They’ll react to our sentiment. If we’ve reached a point where Aunt Harriet and Uncle Bill are buying when they don’t know the first thing about markets, then we have a problem. But I don’t think this market has captured the imagination of the public yet. This is one of the least respected legs I can ever remember. People SHOULD doubt this market after what happened in 2008 but as long as it continues to be doubted, it will keep going higher. But once everyone comes to the opinion that it only has one way to go, that will be it. Do you honestly think we are there yet?
Something happened last week which is adding some more fuel to the fire for this market run. Last week at this time I was looking for at least a suspension of the move in food inflation led by corn. It traced out an excellent price and time peak off the 2008 top but even that was violated. It was an important violation because the initial high on Jan. 3rd hit at 634 on 635 trading days off the 2008 top. That led to a five-day pullback which may not seem like much but it was the biggest correction since the drop in November. But even that was taken out and you have to conclude is this all we get from this quality of symmetry? Then the dollar had a horrible week and has gone as far as it can without violating the possibility of the pattern off November continuing. What is even stranger is the fact that by Friday, the Greenback and Gold were going in the same direction, down.
So let’s talk about Gold. Last week I told you it was in its most vulnerable position since this long bull market began. While the Gann calculation in corn took less than three years to develop, the one in Gold has taken 30 years to develop. In what we are calling the “Gann Bomb,” the price and time square in Gold was felt severely on Friday and most particularly in mining stocks. If you want to learn more about this, sign up for the discussion I’ll have with Dan Collins in New York at the Marriott Marquis on Feb. 21.
Once again, Gold has gone as far as it can go without actually violating support and confirming a bigger correction but the XAU already is confirming. We have targets now on the XAU dropping all the way to 186. In the bigger picture that doesn’t seem like a lot but off the high that would be a move of 19.8%. That is worthy of an intermediate term correction.
But we know the NDX is already over the 2007 peak. The next issue concerns the SPX and what would that take to confirm anything longer than a cyclical bull over the past two years? Perhaps this long term chart can shed some light on that mystery (sse chart below). We have a longer term pitchfork with anchors going back to 2000 which are pointed down and now we are getting really close to. What I’m calling the ‘bear 3rd rail’ hits around 1325. If we take that out the longer term path of least resistance is no longer down. Taking out this pitchfork channel would confirm technically speaking the March 2009 bottom as a long term bottom if the SPX can put this downward sloping channel in the rear view mirror. We are not there yet. There is still an opportunity in the next 30 SPX points for sentiment to turn incredibly bullish. Realistically, if it wanted to, the SPX can get there in a week. That would likely push sentiment towards euphoria. But what if we tread water sideways and drift up into it? If that were to happen sentiment wouldn’t change very much and chances are the pattern would then violate. It all depends on the mood of the crowd when we get there.
Right now, today at the January Martin Luther King Day break I don’t think the market has what it takes to top out but it could be close. Based on this pattern we can also have a serious correction for weeks or months and since we are hundreds of points from the bottom we wouldn’t confirm whether this is a longer term bull or bear market. We’ve gone from 1010 to 1293 in less than seven months. Prices can hit the 3rd rail, turn around and go back to 1000 for the duration of 2011 (which by the way would be a 22% drop) and still not create any real technical damage to the chart.
The initial indication here is for the Greenback to attempt to bounce after its week long losing streak, which means we could see stock market weakness in the early part of the week.
What you should take away from this discussion is the fact the only way we can confirm a longer term bull market overall is if the SPX takes out this long term channel.
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.