It might take another bounce to fail to open the real flood gates. We didn’t see the real disaster scenario playing out in 2011 but it speaks nothing for 2012. That’s a whole new ballgame. This is a bear that essentially started in February. Look at the October 2007 to March 2009 period and that was about 18 months. The good news is we are already 10 months into this thing. Don’t be confused about the Madoff comparison; we could be close to another bounce phase but still months from the conclusion. Whatever the case, events like MF don’t usually happen near market tops, that’s the point.
If this is a trading range kind of market we could stay in it for another year but we should be close to the next bounce leg. Everything depends on how bearish we can get right here. THIS IS THE WEEK and the test of whether the buyers come in. Bears have not really been convicted up to now. This is their true acid test, are they going to get stubborn at the October low? Or might they cover? They covered on Friday, at least some of them did but it was given all back by the close. The fact we had the gap up on Sunday night proves my whole hypothesis, they’ve had their way lately but still haven’t proven they are incredibly convicted.
Looking at China, it’s now one week away from an important time window. We know it found a high early in the month and technically speaking materialized because of a classic Fibonacci ABC relationship. The small C leg on the way up was an approximation of .618 to the A leg. That’s a classic bear rally calculation. We’ll be watching as the last low hit close to an important window as well. Here’s the chart of the week which is the monthly CRB futures chart. What you can take from the CRB chart is a break of an important parallel warning line as it represents a rough Thanksgiving that we haven’t seen in our lifetime. But look deeper. Look at the brown line. When we connect the bottom, the June 2010 low (end of the April correction in equities) and extend it, we see the October bottom holding at that line. You can readily see where we are in relation to that line RIGHT NOW. The stakes could not be higher.
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.