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
Then we got topping on the sundae.
I work hard at staying out of the politics but it gets really hard when you see a zero jobs number and the spectacle we witnessed this summer. Basically, the politicians set an example by telling us they were willing to let the US default on the obligations already on the books. That was one side of the aisle. Before that, the other side of the aisle opened the strategic reserve while the oil market was in a downtrend. To anyone that remote understands the impact of price controls that’s an outrage. Once again, enough blame to go around. I didn’t think they could ever top that.
Hard to believe but they topped it. On Friday it was announced the Federal Housing Finance Agency was suing 17 banks for PAST INDISCRETIONS. If you include damages and fees the money could total hundreds of billions of dollars but one figure reported on Friday was $122 billion. So let me get this straight. First they give out 700 billion to save the banks, now 3 years later they are suing for all of the fraud and misrepresentation. At a time they are trying to create jobs. At a time they want banks to lend. I’ve never heard of such a thing.
But there is one more condition on my plate. Our take since April has been to mitigate our bear stance when the SSE was above 2640 and allow our view to be more bearish when the SSE was below. Does that mean we should have been more bearish in light of what happened because we ended up below 2640 in any event? The answer is no because while the first sequence down to 2640 held, markets maintained mostly a sideways pattern and the NDX managed a new high as late as July. Its only when the SSE broke down did the markets really give up the March Japanese tsunami low. But as the new week began China accelerated away from that 2640 line of ours. If Europe is going to be in trouble, China is as well. It’s all just one big nasty circle.
Are there any mitigating factors? Indeed there is. As I’ve told you there is a good floor on this market given the successful retest. As the NQ dropped off the high from last week fear levels may go through the roof again. In the near term the Greenback and the bond market are at the high end of their respective pitchfork channels. When we least expect it, the markets will do exactly what we least expect it to do. I think there is a lot of fear building out there and a couple of monster down days that gets us near the lows again may be just what the doctor ordered. I’m not going to look beyond another retest of the August low.
Click chart 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.