So now sentiment swings back to the other extreme and we find the SPX outside of its long term bearish channel. I have news for you. The Russell 2000 has been out of its long term bear channel since December. I don’t follow it too much simply because I’m trying to get a proxy for the entire market at large but perma bears have to consider one key point. In new bull markets, the most important leader is the small cap world. You don’t want to see the same stocks that led last time leading again. For a bull market to sustain, new technology, new companies, simply put new blood has to lead higher. It is happening. I’ll be the first to admit there is a problem with the bullish sentiment but as long as the SPX doesn’t revert back to the path of least resistance down as expressed by the longer term SPX median channel; the future of the stock market looks good.
But I come to you this week with two issues. First of all, we have the BKX (Banking sector index). Last week the BKX (See chart below) came close to the higher end of the intermediate level downward sloping median channel. If the BKX were to break out of this channel it could be very bullish for the market. If not the overall market could fall into retreat.
But there is another issue that concerns me and we haven’t talked about it in some time. Last week the intraday pattern on the Greenback was as bad as I can ever remember it. It reminded me of a couple more famous conditions from a decade ago. The last time I saw such an ugly pattern I found myself looking at charts like WorldCom and Enron. Before I alarm anyone, there is one major distinction. Those ugly patterns were early stage bear on a daily chart. This ugly pattern is late stage bear on an hourly chart. The outcome thus far has been similar. Since I wrote about it in my Tuesday night Short Term Update the pattern broke down. Those of you who read my February Gann article in this magazine should realize we are now 118 months into a bear market of a pattern that topped at 121 and is 3 months away from squaring out at 121.
We’ve always been concerned with the quarter lines on this monthly chart. You can clearly see the price action ended the week on a cluster of 2 of them. We can ill afford a breakdown here and if we do break down it can open a Pandora’s Box that can ultimately put the Dollar in a free fall. We know the equity market has enjoyed an inverse relationship with the Greenback. What I wonder is at what point does that inverse relationship equities has with the bond market change to a new relationship with the Dollar where they both fall together?
Click charts 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.