The news of the week is the continued surge in oil prices. All I’m going to tell you is the high last year is stiffer resistance than most people realize. We aren’t even there yet and prices are finally starting to back off. A lot of the risk on trade is going to depend on China which backed off the high this week on day 619 but recovered by the end of the week which means we should see a retest of the high. It remains a strong market especially if China can retest the high.
The stock market remained elevated this week despite all of the booby traps in the calculations. We’ve hit another, given the 144 day window off the August low. Why does the market stay elevated?
Simply put, the pullbacks we get in the middle of the day do a very good job of helping to reset the oscillators. Look at the charts themselves on a daily basis and it appears they are extremely overbought. But when you look at the VIX we see a low reading of 16.09 on February 3rd. The market is higher now than a month ago yet the VIX is not lower. We said in January when the indicator was dropping that for the move to continue, it had to find a way to refuel and not continue to drop. It hasn’t quite made up for the drop with share prices prior to Christmas but here it is a month later and the VIX is not one drop lower.
The high for the SPX on Feb 3 was 1345 so with a high of 1378 that’s a good 33 points without getting more euphoria. What that also means is lots of traders have been picking tops, buying protection and allowing the market to continue its slow melt up. As you know, we look for bears to fuel rallies and bulls to do the same on the downside it’s those bears that have to cover their short positions in attempts to pick tops that helps keep the market higher. For this week, that was most apparent on Monday morning where we were greeted to a sky high spike out of the trading range from the end of prior week. It set the tone for the week. However each day was greeted with at least one selling event. On Friday we even had what I thought was a mini crash on a 3 minute chart in the NQ.
Another feature of the market that has been confounding to bears is that when markets do pullback, they become one day wonders. Remember we used to use that term back in the bad old days of 2008 when the market would spike sky high for a relief rally? What I’ve been seeing is the reaction to the cycles and Gann calculations is the shakeout evidenced by that big drop in Apple computer a couple of weeks ago. That’s typical bull market behavior.
But if we are going to talk crashes, we had one in Gold on a 60 minute chart. It’s too early to say how far it will fall because we have better Gann readings for a high in Silver than we do in Gold. Silver is also reacting to a trend line going back to last April’s high. But I think the real culprit for the turn in the precious metals came from the Greenback itself which always takes its time and is a feast or famine type of market. Finally it had the bigger bounce off a 2 week selloff.
But the clearest indication of everything might be on the longer term volume rollover Copper chart. This is the chart of the week. What we have is an ABC up where A and C are close to equality. One leg is 71 points and the other is 73 points. As we start the week the price action is bumping into the A wave tendency line which is acting as polarity. The takeaway here is if Copper is going to fail, this is an excellent point on the chart for it to fail. I’m going to watching it all week as a proxy. Just for your information the data on the left side of the chart from the 09 low has a range of 337 points and the bear move last year was roughly 34 weeks so we have that 33.7 and 34 working at the low. That might be important as the low is a very good pivot. Just so you know, the low for this sequence was on February 17 which turned out to be the 261st day off last year’s top which means we are working on an inversion of the cycle and that is a bull market’s way of surviving. Anyway, that’s the way a cycle analyst looks at charts. The fate of Copper is largely going to depend on how well China fares this week.
Another bullish feature of this market is the behavior of the banks. We haven’t had to talk much about the banks lately because they haven’t caused us any trouble. A market where the BKX and China refuses to drop will not get into trouble. I think there is still room in the BKX and it has the potential to get all the way up to 50 and with a recent high of 45.96 that might not seem like much that still over an 8% move from here. In fact I think there is a very good chance the banks have put in a longer term bottom.
Next page: Attack of the 'ultra bears'?