It was an interesting and wild week. The 3 key conditions this week were the March lows, the SSE and the configuration of the oil market. Let’s talk about oil first. On Thursday we had the biggest release from the strategic reserve in history. Bigger than Katrina as well as the Gulf Wars. Here I’ll ask the question for you. Why? Why would you release the strategic reserve when oil prices are in a downtrend? Over the years I’ve done several stories in my various forums about price controls. They never work. The biggest example I can give you is Nixon’s WIN. That was the early 70’s as they tried to put a lid on inflation. You know what happened throughout the decade. If anything, price controls make the problem worse!
Would you like to know how this could backfire? They are trying to knock hedge funds and other speculators out of the game. Don’t you think the smartest guys in the room know that price controls don’t work? If anything, it will bring in more speculation.
The only possible explanation here is if the administration knows something we don’t know and a major war is imminent. If that turns out to be the case, I’ll take it back because in a time of war, conditions are totally different. But short of that, if this is some way to get the economy moving again, there’s many other better ways. Quite frankly, you don’t I indulge politics but this is the kind of thing that makes incumbent Presidents EX Presidents. I don’t care who the President is. That’s not political, its poor economic policy. If this is a plan to break the backs of the hedge funds and speculators it goes against the grain of everything our financial markets represent.
But it was a loud, loud news event which materialized just as the prices on the WTI chart fell into the .618*A configuration. That is the last chance to get a bullish spin on this market because in terms of patterns, in a bull correction many times it’s the A wave that will extend and the C wave will be short. So you can imagine what is at stake here at this week’s low in the oil market. If it breaks we could see a C wave extension all the way to 70 and you can imagine what that would do the stock market and the economy. It made the attempt to bounce, Friday was the retest leg and so here it is Monday morning and the jury is still out. Because of the wave configuration this is probably the easiest market to track if you are looking for an indication of what will happen.
Next we have the SSE which broke down from our 2640 line but finished the week well back above it. If we go by the events in China one would believe the March lows should hold because there is about a week lag from what happens over there. Here’s what I don’t like about what’s going on in China. On Thursday night their leaders announced they had whipped inflation and they believe it’s totally under control. It reminds me of Herbert Hoover’s happy days are here again while he didn’t realize the light at the end of the tunnel was the bullet train. Politicians don’t get to announce that inflation is whipped because the market rallies up. But those guys are new at capitalist economics. They’ll find out. One wouldn’t like to think that Chinese markets bought the rumor and will sell right after the announcement. But I’ll stick to the game plan and not get overly bearish while the SSE stays above 2640. It was off to a good start this week so it looks like we really do have a trading low for the SSE. That’s one less major headwind we shouldn’t have to deal with this week.
Then we had the Greek sequence. What has me concerned is a society that knows they need to take the medicine and will go under if they don’t and still don’t want the cure. It’s the kind of medicine that will be tough to get through their legislature this week. But they’ll probably get it through. Why? Because they can.
Friday a Wall Street Journal story made the rounds that the CFTC is scrutinizing the trading just before the news of the oil release came out. Seems that was leaked to the right parties. Perhaps they ought to examine the time before the Greek news came out on Thursday. This is the first time I was in front of a screen that even I could catch something irregular going on. In one 5 min bar the NQ and others totally retraced the prior 16 bars in a move you almost NEVER see. The only time I’ve ever seen anything like it was after a Fed meeting. The move happened AND THEN the news was released. If that wasn’t a leak, I don’t know what was. It was totally out of character to everything that happened on the chart prior to or after the event. What the CFTC is complaining about I have no idea, whatever happened materialized concerning the strategic oil event materialized after my bedtime.
So the bottom line for all of this is we ended up with a retest of the March low and a bounce that materialized last Thursday as I was at the convention. Thursday’s hysterical retest leg is still holding the low. As we ended the week, the jury was still out.
What about the quality of this bounce. As far as I’m concerned, the calculations everywhere except the Dow are soft. The market is bouncing strictly as a result of the seasonal time factor concerning the Summer Solstice. That’s good enough to get the turn but not enough to sustain. In China, the move commenced in the 233 day window off last July’s low. Keep in mind their time windows are a little different from ours simply because they close their markets more often than we do.
Another issue I have is the high in the NQ has not been able to get beyond the resistance level you see on the following chart. The middle peak was achieved Tuesday night and held ground until the Fed Chairman’s press conference. People think it sold off because they didn’t like what Bernanke had to say. That’s not true. It just reached a point of resistance and supply where professional selling came in. The same problem held form on Friday morning when it turned on an outstanding Gann square of 9 calculation. I’m concerned we could get yet another retest of the March low simply because this set of conditions is truly a witch’s brew. If you consider that the high you are looking at has better characteristics than the low for this sequence breaking the March low has a much greater chance of materializing.
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.