We came within 23 points of the SPX piercing through the long term bear market pitchfork channel. That being said, I have some good news and I have some bad news.
Which would you like first?
I always prefer the bad news so we’ll start with that. The bad news is I have a lot of symmetry with Friday’s turn. Here’s a sampling: the 2007 top in the SOX is 549.39. The high on Thursday is 549 trading days off the bottom. It’s also 262 weeks off the 2006 secondary top and 891 trading days off the 2007 top. From the January 12, 2004 top its 2572 calendar days which doesn’t mean so much unless you reduce it down to hours where you get 61,728 which is 72 hours or 3 days shy of a perfect 61,800 hours. Just in case you were curious.
Banks have a 2007 top of 121.16. The range of this move? Its 12.17 and that’s too close for comfort. The Dow is 144 days off its July low from last year. There are others as well which we’ll discuss at the New York Traders Expo breakout session.
The potential good news is prices are not lining up with the bear channel we’ve discussed in this space a couple of weeks back and on the monthly SPX chart below. We can look at this one of 2 ways. First of all, symmetry isn’t lining up with the median channel. But according to Andrews, when a pattern comes very close to the magnet point that is the channel line and it doesn’t quite get there, it can be a big show of underlying weakness. Is your cup half full or empty?
Additionally, while the calculations are right on the spot, they do not appear to be of a long term nature. But I have to define long term very loosely. We could have a nasty intermediate term pullback which doesn’t come anywhere close to the 2009 lows that creates technical damage to the charts. But before we even get there, I want to see follow through to what happened on Friday. I think follow through at this point is a higher probability event.
This is what we are dealing with. We came very close to confirming the end of a long term bear market for the overall market and a news event like Egypt materializes. We don’t know how this is going to turn out but one major geopolitical event stands out where Fibonacci calculations hit perfectly. A little stock market history is in order. From the low in 1938 to the double top high in 1939 the orange lines have a .618/1.618 price relationship to each other. When does the pattern complete? This perfect symmetry completed 2 weeks after Hitler invaded Poland and markets dropped to the 1942 retest of the Great Depression bottom. My point is we had important symmetry at the start of WWII which was close to an important breakout and we are close to a long term breakout here as well. So close, yet so far.
Turning to currencies, I don’t see any really bold calculation in the Dollar other than the fact it is holding on to the parallel warning line and finally bounced off it. The interesting calculation comes in the EUR-USD. Here we have a high at 1.4282 on November 4 and a low at 1.2858 for a range of .1424. The recent rally is 14 trading days. We have a strong reversal candle based on these calculations so I would suspect the Greenback to make further advances in this next sequence. So if the Dollar is going to do better, that probably means we are not out of the woods by any stretch of the imagination as far as the geopolitical situation is concerned. But if there is a silver lining in this cloud it’s the fact that all we really have in this calculation is an intermediate cycle point. What we are attempting to do here is get at least one calculation that affects the Greenback to leverage it and see if there is something more lurking under the surface.
It’s very easy to look at a market that is as extended as this one has been over the past couple of years, see an important geopolitical event and come to the conclusion that the sky is falling. In fact, if we see sentiment get to that extreme, it would more than likely be a bullish sign. So the idea here is to take the news event and put it in perspective to the technical condition of the market and draw some independent conclusions.