It was two weeks ago I told you we were coming to the potentially most pivotal week of the entire year. The 233-day window for the dollar was a week ago Friday. That meant the window extended to Monday. On Sunday, of all miraculous things, we learned about the death of Osama Bin Laden. Once again, the time window came due and the news event materialized as if by magic. In this case, it obviously wasn’t magic as a lot of planning and perfect execution on the ground led to this very important and historical event.
But the dollar was already in bottoming mode at the time of this event as I spelled out in this space a week ago. Unfortunately, it always seems to be a "War and Peace" sage with the Greenback, as none of its reversals ever comes easy. But once it turned, it was a mighty one as there seems to be only one mode for the dollar: extreme. That leads us to the next hypothesis; we had only a couple of ‘outs’ to borrow a term from the World Poker Tour as far as confirming a new long-term bull market. One of those was a turn in the dollar at the last window. So the dollar turned and we can’t confirm a long-term bull market. It’s as plain and simple as that.
So here’s the condition that concerns me the most, even more than the US Dollar but in this market, closely related. I came here 2 weeks ago and gave you excellent calculations for the high in the SSE. It’s been down since that time. But once it started going down there was a week lag in the commodity turn. I sat in my air conditioned cave that week the market made a new high while China kept dropping wondering what the problem was. The Silver players figured it out first. The SSE topped on the 18th, Silver topped on the 25th and the NDX hovered around the high from the 27th to May 2. But the fact no fear showed up in regards to China is very troubling to me. Had we entered a sequence where the overnight action in China would’ve been met with selling on our side of the pond I’ve felt much better about it.
How’s that? Here’s what most people fail to understand about financial markets. The stock market is not the economy. The stock market is not driven by fundamentals. The stock market IS driven by the reaction to the fundamentals. It’s the reaction that counts. That will tell you if there is a bullish or bearish mentality to the market. Had we kept pace with China it would be a concern but the quicker fear comes in the sooner the correction ends. That’s bullish sentiment. Once DENIAL enters the picture, we are dealing with a whole new ballgame. Denial is bearish sentiment and we haven’t seen that in a while. Even in the February to March sequence, the fear trade took over; it built up quickly and look what happened. We ended up at new highs. But there has been a lag with China and those of you who follow the fundamentals; I hope you realize we can ill afford to have China catch a cold. I know this is important because it’s being overlooked and very few headlines about it. If you read it here and then DON’T see headlines about it don’t make the mistake of thinking it’s insignificant. The idea is to tune into things the crowd isn’t.
So it stands to reason that if China which represents the commodity trade takes a vacation, eventually commodities will fall back and the Dollar will turn itself around. In the case of the Dollar it had to get to its time window, which it did. Briefly, let’s take a look at those commodities. Silver is down 33.90% which almost confirms the fact the bubble is popped. It had to end badly and the fact so many doubted the fact we were in a bubble almost surely confirmed we were in one and the fact it fell so sharply is excellent evidence that is was a bubble. That’s been another of our hypotheses of the past weeks and months. At the 38% line off the 2008 bottom, it is now on the cusp of being something bigger. And there are good Gann calculations at the high. Gold has fewer calculations at this time but the tide is now heading south. In the bigger picture, we hit the turn about 2.5 months south of the 121 month square out for the Greenback. That opens up the discussion as to whether we’ve just seen the end of the bear market in the Greenback. There’s a chance it could’ve bottom early but the odds are greater we could be working on an inversion which extends the bear market further into the future. It’s really too soon to tell.
This might be it for oil as it hit one of my longstanding targets and had excellent symmetry on this high. On the longer term continuation chart Crude Oil peaked at 609 trading days AND a Gann square of 9 reading at 903 degrees. That is a recipe for a perfect storm. If it’s not a long term top it’s a significant high. We have so many calculations working at this turn.
That brings us to the monthly jobs number. They were anticipating +185 and ended up with +244,000. Never mind that fact that 50-60,000 of that was McDonald’s. By the way, that gave me pause beyond what we already discussed here. Are diners checking out of America’s chains and gourmet places and going to McDonald’s instead? The number was better than anticipated. But the all-important reaction was much better than anticipated. I don’t know if ‘better’ is even the right word. Thursday was a day where fear was rampant, mostly because of the new Silver margin calls. We did have capitulation type selling. A good turn would have been a sell off on the news as fear followed through into Friday morning with a reversal partially through the session and the Dow could have moved 150-200 without anyone realizing it. That’s your classic bullish reversal day that ends a correction.
That didn’t happen. Instead, when I woke up on Friday morning at 5:25 am on the left coast to see the jobs event I observed happiness on the floor of the exchange. One trader interviewed on Bloomberg stated that Friday would be a "great and exciting day." I tried to put my brain around the 180 that sentiment took from the time I went to sleep until the time I got up. To boot, it was day 618 off the November 21, 20008 bottom. So it was really an important day. Markets started higher which was interesting but I don’t know if it was good because suddenly, there was too much happiness. If last week was choppy for you it’s because sentiment turned on a dime. It could turn again, but I don’t like the fact that happiness and confidence came back so easily.
With the time windows over, we couldn’t confirm the longer term bull and the Dollar rally is not likely over. However, it’s time for pullback and bounce attempts this week in the Dollar and commodities. Our time window netted the biggest fish of all, Bin Laden. If people were wondering why the markets didn’t rally on the news beyond the initial knee jerk reaction the answer is quite simple. Why would it? Markets generally top out on good news. So I can’t say that we’ve seen an important top in equities, metals or bottom in the Greenback just yet. But it does appear something more important may have materialized in oil last week. As far as the stock market goes, the advantage goes to bears right here and they keep that lead until the smiles are wiped away from bulls.
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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.