Welcome back and I hope you had a nice wrap up to your summer. It certainly was a strange summer without much paint drying. It’s been a concern to me because markets peaked early in the cycle in May or July, take your pick. We didn’t have a normal August and there’s a suspicion not in the back of my mind anymore now that it’s September the snowball may be going too fast to stop. Look at the bright side, if the snowball is accelerating, there’s good history to suggest it could all be over in October.
Don’t be mad at me, I’m only the messenger. I have no control over these markets. But here’s what I do know. Once the Black Swan started, we were on top of it and looked for the turn to come in the 610 day window to 2009. That happened. From there, we looked for a trading bounce to the polarity that was former support at the March Japanese tsunami low. Before it happened we got the retest establishing the floor on the market. Markets held and started rolling over last week at the exact point of former support at about the time frame we were looking for. Now it’s September and the market has problems.
Here we don’t look to news events driving market activity but we do look to the psychology behind the move. Friday was a rough day. Thank goodness for the holiday! I was awakened from sleep with an alert at 5:30 AM about a zero jobs number. I thought Friday could one of those paint drying days. Whoever was still at the trading desks on Friday morning was not thrilled.
And who could blame them? Think about this. We are nearly 3 years into the presidential cycle and the economy is creating NO NEW JOBS. Something is really rotten. Before I get into that we had several conditions that were already conspiring against stocks on Thursday night that if they weren’t a perfect storm certainly meant trouble. First was the setup in Gold which looked like it wanted to go higher. What happened Friday? Gold had a +50 day. Every time Gold accelerates the market gets hit. The Dollar has a great reading on Thursday on the Gann scale but didn’t take out that reading on Friday. By the way, while I’m thinking about it, the Futures panel discussion at the Forex show in Las Vegas will cover this exact subject. Dan Collins, Sam Seiden and I will discuss the commodity/currency connection. I’m going to show you how to leverage one chart to get a leg up on the rest of the commodity complex.
But that was Friday. By the Sunday and Monday night session that great reading was eradicated. That’s trouble because it meant the EUR-USD gapped down at another great Gann reading. All I can tell you is it takes a strong leg to take out a very strong Gann square of 9 level and that’s precisely what happened as we head into Tuesday morning trading. It’s one big reason why the pre-market futures numbers got Czonked. It’s one of my concerns coming into September as to why the market was in trouble in the first place and it has a lot to do with Europe.
But another of our concerns was the impending dip in the USD-JPY. I think a better Japanese market might be good for markets overall. But no help there on Friday. Regular readings know I’ve shared my concern for former Finance Minister Noda’s attempts at intervention for the Yen. The USD-JPY is barely holding a long term square of 9 reading from 1998. If that broke I thought it would be Noda’s job. I never dreamed they’d end up making him Prime Minister.
But the big one was the bond market which concerned me the most. Last week the bond market started setting up beautifully for a fresh leg up. As you know money rotates out of stocks into bonds as the safe haven.
On Thursday night this was one of the clues that told us the market could be in trouble. Nobody could’ve anticipated it would be Friday since it was getaway day to the holiday but there it was. This new high is troubling because it took out our 360 month high. Now we are higher still.
As you can see, bond market, dollar and even oil. Yes the oil market is lower even as refineries were off line as a result of Irene. But I’m here to tell you I saw them personally in Elizabeth, NJ and they looked okay. But then Exxon and others had to evacuate personnel off the rigs in the Gulf as another storm hit. If this were 2005 (during a raging bull) prices would be going through the roof on any sniff of a shortage in oil. Now we are more concerned about double dipping. So there is enough blame to go around on these charts without even talking about the jobs number.
Next page: A look at the chart