How stocks, bonds will react to break in dollar

It was another week with many cross currents. It was a week where the bond market was mostly up and the stock market was mostly down. We know how that has worked out over the past two months. Our view that the long bond would be a roller coaster thus creating turbulence for the stock market has come to pass. I don’t think that relationship is over yet.

So how are things in Japan? We know the nuclear situation is terrible but the chart is holding its own nearly a month out. As the news gets worse the chart doesn’t. That could mean that everyone who wanted to sell has sold. But it’s a good time to remind you that our work had no long term calculations when the USD-JPY turned other than the fact the intervention happened right on the weekend of the Gann Master Timing window. It certainly didn’t hurt that the Nikkei was in the 233 day window off its April high from last year. Since then news has not been good but the chart refuses to quit. Wasn’t last Monday the day they equated this disaster on a par with Chernobyl? There was a knee jerk reaction but the reaction was worse on our side of the ocean. The market may be concerned that the insurance bill is still going to be bigger than what was previously thought.

What about China? That one also looks fine and appears to be the classic wall of worry as we hear every single day without fail about how terrible inflation is in China. I’m not there so I trust it’s a problem. All I know is the chart keeps going up. So we have NO EUPHORIA over China, plenty of problems and a bullish leg. It just amazes me from one day to the next how all they talk about on television when the subject of China comes up is the inflation issue. But the market doesn’t work that way.

One of the big issues of the week was the fact many commodities did respond to the 144 week window off the commodity crash high from 3 years ago. You don’t hear a single word about it in the media but many commodity charts, most notably energy, responded to it. While we are on this subject, others like the XAU responded to being 161 weeks off their original top whether this one was a high or secondary high. Additionally, the XAU peaked this time 619 trading days off its 2008 bottom. Of course this one is lagging while Silver and Gold went on to make new highs, again. The more I hear people talk about Silver not being a bubble, the more I’m convinced that is a bubble. One of the first requirements of a bubble is the denial of it. They’ll tell you the valuation isn’t there. So what? The chart is parabolic and the very best of calculations can’t nail it down for more than a few days. The XAU is lagging but Gold and Silver are also working against 161 week high to high windows. If all we can get out of a 161 week cycle is a 2 day pullback then inflationary forces are even more serious than I’m thinking.

All of which leads me to the next concern. The Greenback is in serious trouble of breaking down on a long term basis. The culprit is the EUR-USD which is also sitting at a 144 week high off 2008. There is a set of calculations at the mid line which subscribers saw on Thursday night. Friday was slightly lower but bulls are stubbornly holding on. As I told you last week, the main concern on the long term chart of the Greenback is the quarter lines. A week went by without any serious violation and if I have any good news to report on that front is the fact the Dollar looks like it is trying to find a low. But it could still be just a smaller degree 4th wave triangle with yet another set of lows to come.

Friday was a good day for the bond market and somewhat flat in the stock market. Tech was flat but it was the first time in a while we saw the ES and long bond go the same way most of the day. Is the inverse relationship breaking? It will take more than one day to prove that.

But banks were down and that could possibly be trouble. That’s the next thing that is concerning me. For the most part, the banks have been neutral. During the February sequence banks did not lead to the downside and since the middle of March they did not lead back up. That’s okay given the fact the market has been up since last summer. The banks lagged but it hasn’t stopped the stock market from continuing higher. The concern here is not only that the banks played catch up last week, but whether they will take a leadership position to the downside. That hasn’t happened yet but this is another week.

This is a holiday shortened week. Using a playoff analogy the bulls are in a must win situation. I think this and next week is going to be one of the most pivotal sequences of the entire year. We are coming to the 610 trading day window off the November 21, 2008 bottom in the NDX. This is the very same bottom we’ve talked about numerous times as the 1108 week low off the big range square time relationship to the Dow 1987 top. If we are going sideways at the end of the week, this market could be in serious trouble. However, if this turns out to be a bearish week, I’ll be looking for an inversion low. If the end of the month comes and we see that a low is put in coming out of Easter then the rest of the year should have a bullish outcome. If it doesn’t, that won’t mean a return to the bear market but it would mean the corrective activity since February is getting ready to take on a more serious tone and create some real technical damage. I speak to a lot of people who are looking at every high as a return to the secular bear market. Don’t count me in that group. I tend to see things in the moment.

I look at stock market history and observe the fact we made a bottom in 1932 and it was retested in the 37-38 sequence and again in 1942. Both of those sequences failed to make fresh bottoms. Everyone points to the problems in the economy. I’ll remind you the market bottomed in 1975 before the last oil spike, Jimmy Carter, the Iran hostage crisis, stagflation or 20% interest rates. The fact people worry about inflation in China means little to the chart other than sentiment. What concerns me most is the US Dollar. In fact, that is really the only thing that concerns me. The Dollar is now 118 months into a bear market that is 3 months short of squaring out at 121. If any crisis is coming, that would be the one. So we’ll see what happens in this next important sequence.

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.

About the Author
Jeff Greenblatt

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.

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