The theme this week is resistance. It’s everywhere. Housing hit the big line. The SPX is within points of the longer term mid line of the pitchfork but has violated a few other lines. We are at 619 weeks off the Internet bubble pop of March 10, 2000. Few people realize that is one of the most important pivots of the last 100 years. WHY? Because it has a direct relationship to the 1932 bottom that ended the Great Depression. How? We’ve told you before but for the benefit of the new people the ’32 bottom is 40.6. From that bottom to the Internet peak is 812 months which is 40.6*20. We are dealing with the very long term here. It’s good because in the next sequence the market may play its hand if one only knows where to look. It’s a big time Gann calculation.
There are not a lot of people that know this stuff but we’ll take any edge we can get. Consequently there are not many people that know the 1108 symmetry we’ve discussed for the past 2.5 years on the Dow 87 top and the NDX 08 bottom. Last year I spent a whole panel discussion in NY talking about just this topic.
I bring it up at key points in time as the NDX has hit a new high. You have to wonder what happened to all the people that told you we’d be back at the 09 bottom by now. I’m not concerned about them but your takeaway is we are working with a methodology that stands the test of time and keeps you on the right side of the market MOST OF THE TIME. That’s all you can really ask for. But the 1108 symmetry is a gift that keeps giving and is the major reason why I’ve never become too bearish the market even with spectacles in 2011. But this is a new year.
I am concerned about a high because of all the resistance. When we get to supply levels we have to assume that bears will assert themselves. To the degree that they can the market will drop. But quite frankly, they’ve had no backbone. They have a chance here. What should you watch for this week?
Sometimes the trend isn’t as important as the reaction to it. There are some very good technicians who are calling for a top this week. I’ll add my 2 cents. We are absolutely vulnerable. But that doesn’t mean we have to have a major reversal. In the past 2 updates I’ve been talking about a shake of the trees so stocks can go from weaker to stronger hands. Here’s what you need to think about. In 2005, the NASDAQ topped early in the year at 2191. After a correction it challenged the high in August, pulled back again and finally broke through. The takeaway is we may not get through on the first time but we have to see what kind of firepower the bears show up with. If they have a weak attempt to go down, bulls will end up taking this market higher by default.
Here’s another point to consider. The meltdown in Europe never materialized. However bears that stayed short the Euro did really well. Last week the chart turned on some good Gann calculations. It stalled at a short term resistance level. I think bears are starting to realize they have good profits and may start to cover real soon. We had some of it last week but it’s a drop of rain in an ocean. Right now we are looking at a massive short squeeze potential. This isn’t a prediction but a condition that can materialize sooner or later. If it does materialize we can see the stock market not only go above resistance levels but go much higher.
We are at risk for a selloff but what you should watch for is signs of fear developing really quickly. If we end up with a couple of down days where the news is really bad chances are the correction will be short-lived. However, if things start dropping back and you hear traders on the floor talk about a correction being a good thing because they’ll be able to position for a pullback, then look out for trouble. It’s impossible to predict what will happen but that’s what I’ll be looking for.
The next consideration is China which finally is doing just fine. The strong start had institutional support where traders bought up the pullback and didn’t even allow for a retest of the bottom. Now it’s about 2/3 of the way up the pitchfork channel and still has a target near 2400. If China is any advance indication as to what will happen, the market still has room to go higher.
Here’s what the implication of the time window is. If a stock market wants to turn, the higher probability point is the time window. We haven’t missed a major turn in 10 years. That doesn’t mean I missed one 10 years ago, it means I started taking this methodology really serious 10 years ago and have recognized all of the big ones over this period. What I can tell you is if the market elects not to turn on a big window, it’s because the underlying structure of the current wave is really strong and destined to go a lot further.
Next page: What the time windows tell us