Three weeks ago in this column I told you the stock market was in big trouble. Last week I told you the Greenback was in big trouble. Unfortunately, America is in trouble, too. Since we are a big believer in mass crowd psychology, we knew that soft patches which leads to “transitory” unemployment numbers is a recipe for a witches’ brew. The charts didn’t disappoint in that regard as the markets experienced one of their most rotten weeks in recent memory.
Is there any silver lining here? Maybe there is, it just feels like it’s getting too easy on the short side. Once it gets this easy, it’s usually close to a turn. Luckily, the calendar agrees as we are now within a week of the Summer Solstice which is one of the points in the calendar where markets naturally look to turn.
We’ve been telling you for about the last 18 months that nothing bad happens to markets unless banks are leading to the downside. This time they are complicit, guilty and leading the bear party. However, if you look carefully at this chart you’ll see Friday’s action finally at the lower end of the pitchfork channel and hit the lower end of the bullish channel dating back to the rally which started last September. What that means is if the banks break down from here we have to start thinking of this move off the top as something more significant. But they do have some interesting Gann readings and coming into the week conditions are at least ripe for a change of direction.
That brings us to China which hit a new low for the sequence last week. China does not have the calculations just yet but it will be 144 trading days off its November peak this week. Conditions are close to being ripe for a turn there as well.
But here’s what I see as the larger problem. Not only do Washington and Wall Street discount the possibility of a double dip, it appears sentiment isn’t even close to the level of fear needed for a bottom. That’s a big problem, especially since we are upon the test of the March low. The March low isn’t just ANY low. I wish it was. But the March low was the 233 day window in the Nikkei off its April 2010 top. That low was accompanied by the historic earthquake, tsunami and fear of an absolute nuclear meltdown. You know that. But now is the time to remind you we are approaching that low with nowhere near the kinds of fear levels that turned that market. I can’t imagine what could happen this week to get us anywhere close to that kind of discord. By the way, that low was also within a couple of days of the Gann master timing date of March 21, the most important turn window of the whole year. If we take out the March low, we could go A LOT LOWER. But before we start the funeral procession, we have very strong support in the Shanghai Composite at 2640; it’s a long term Gann square out level. As long as that holds, then fears of the worst for the Chinese recession should abate for the time being.