History converges with key S&P technicals

Two key events materialized last week that had to be related. As you know we’ve been watching SPX 1325 very closely. Hosni Mubarak and what is coming to be known as the Egyptian revolution also came to the end of phase one. Make no mistake, we may have hit a culmination point but it’s only the end of the beginning.

First, I’ve noticed that when markets get close to important intermediate or long term channel lines important news events tend to develop. This time was no exception. Perhaps because we are testing a long term median line we had some history enter the mix.

History didn’t shortchange us either. This one has the potential to be a serious game changer. But along with the event comes some of the most complex reactions I’ve seen to any event in a long time. Here at Lucas Wave we are not concerned with news events as we are the reaction to them.

Last week was experienced with alternating sentiment. One day we get fear and the next complacency. It was Thursday when news broke that Mubarak was stepping down. The media said that traders were solely focused on food inflation. That wasn’t exactly the kind of fear of 2 Friday’s ago.

Now the event has happened.

Actually, we were not rooting for fear or anyone to get hurt. I was certainly outraged to see what happened to our journalists who got caught in the crosshairs. But as a trader one must do the tough job of separating emotions about an important event and translating it to what it means to the market.

As perverse as this sounds, when markets do climb a wall of worry they have a better chance of going higher. I think the pullback 2 weeks ago lasted only one day because fear levels that the end of the world was coming materialized very fast. That day is still fresh in my mind. Perhaps the market has developed a case of amnesia.

Now we have almost the polar opposite reaction. How could this be? 2 weeks ago we feared a regime change would lead to the closing of the Suez Canal and turning the clock back on the Israeli peace treaty signed all those years ago with Anwar Sadat at the helm. Now we finally have that regime change as Mubarak steps down. But the reaction was one of extreme happiness. Here’s what I heard as the key words to describe Friday’s historic moment in history. JUBILANT PANDEMONIUM breaks out in the streets. Goodness, there’s real EUPHORIA out there. Suddenly, its not Tehran 1978, but peace has broken out in the region. It has? As I said, this is only the end of the beginning.

You’d expect the people on the streets of Cairo to be happy. But why would the market go up when 2 weeks ago it went down?

My point is that this is widely viewed now as a GOOD NEWS EVENT. I’ll agree, it is good news. We don’t know who will be in charge in a few months, let alone next week. We have no idea what will happen. But if you read Socionomics (I trust many of you have), it was stated there that peace broke out between the Israelis and Palestinians at Bill Clinton’s White House during a raging bull market. Peace is supposed to break out when markets are rallying. It’s a sign of a rising social mood. But you can now also make the case they are no longer climbing a wall of worry.

Friday was the first time I heard the term ‘euphoria’ used on CNBC in a LONG TIME. I even remember who uttered it. It was Bill Griffeth on The Closing Bell. I would come here and tell you it’s a top but this one is more complicated than that. On the one hand, we do have euphoria but on the other hand we are still worried about what comes next in Egypt. Can euphoria and worry co-exist side by side? In the short term it probably can. I don’t think we can get more euphoric than this. It’s quite an event, hard to top. It’s a Berlin Wall type of event.

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