The week had 3 important events. Let’s start with Greece. They had what amounted to a mild credit default event which was structured and came in for a soft landing. But were Greek equity bears looking for the next disaster again? You bet they were. Once again it’s the same story; the only way they really try to take down the market is by simulating another Lehman moment. The only trouble with that is you can’t simulate a panic. It either happens or it doesn’t. We’ve been singing that tune since last summer. The only real black swan event lately was the US debt ceiling crisis because intelligent minds could not fathom a default when one didn’t have to materialize. That’s where the panic came from. You need to be really concerned if suddenly GERMANY were to default because no one expects it. But this European saga will drag on with a neurotic mass mind that is dysfunctional and doesn’t know when to quit.
Roubini is suggesting the NEXT crisis point will be Portugal so we’ll probably spend the rest of the year worrying about that. Are you ready for another roller coaster as we wade through the next PIIG? They’ll probably blame Portugal at some point but don’t think that just because we just went thru such volatility in the fall that it will play out like that again. But we are really overdue for a correction and they’ll find some catalyst. You and I will know it’s the technical cycle picture.
Why is the market dysfunctional? You short it and see what happens when it fails to really drop. Bears get all worked up, drop the market a little or for a day and that’s the end of it. I think bears have a lottery mentality. They short it not so much because of the fear -- I think the market knows better by now -- but they secretly hope for a breakdown from bad news. It’s gambling, plain and simple. I could write chapters on the difference between trading and gambling and I think a lot of people who are involved with financial markets do more gambling than trading.
How else can you explain a track record worse than the Indianapolis Colts? At least they won 2 games. Euro bears that short the stock market have come up empty.
Next is the oil business. The President met with the Israelis and while not telling them what to do certainly he would appreciate if they allow the diplomatic process to play out. He’s got a point. Perhaps economic pressures will work on Iran but you take the history of the Israelis and the Jews and I’m absolutely certain that if they have to act, they will. US and Europe might play appeasement but the Israelis will not. But that kind of sentiment ought to push oil prices HIGHER, not lower. Oil was already pulling back before Obama met the Israelis this week. It was a week where we had another shakeout, another one day wonder in an ongoing bull market. The NQ was already at a new high on Friday so another correction bites the dust.
Finally, we have Jobs # Friday at 227k. It was a decent enough number and based on the word out of Athens Thursday night we could have had some real euphoria on Friday morning with a decent number but the event was greeted with a ho-hum attitude. I didn’t see much glee nor did I see much in the way of negativity. Consequently it didn’t surprise me that we didn’t get a buy the rumor sell the news event. Markets stayed up all day and only sold when the NQ hit the double top and pulled back slightly. Bears had the chance to take it down after the Greece news but even they had 2nd thoughts. It didn’t happen. More dysfunction.
My concern obviously is a market that peaks at the Gann Time window in a couple of weeks as opposed to getting the bigger correction and having a healthy inversion. The week started heading that way but bears had no follow through. My other concern about oil is it continues to rise with the stock market and we need a higher stock market but not oil prices. So it’s a case of heads I win and tails you lose (from your perspective). The higher the market goes, the higher the cost of oil. At some point, people can’t absorb it anymore. In my mind, I’ll get concerned if the May 2011 pivot is taken out. If last year’s high is taken out then we are in new territory and one would have to wonder exactly what would stop this oil market.
What I think can stop it is the action out of China. Last week the retest of the high failed and prices started falling away from the 610 day window to confirm it. If the SSE continues south it will put serious strain on the risk on trade. Unless China stabilizes I wouldn’t want to be long oil, steel, copper or any of those related areas. If that happens you’d probably want to be long the US Dollar which hit important resistance at 80 and is flirting with the idea of breaking thru. We also need to pay close attention again this week to Apple which has put in an excellent square of 9 calculation at 162.4 weeks. Without Apple leadership tech will have a hard time staying elevated. The other key area to watch is the BKX which held a very important Andrews pitchfork line.
Most of what we needed to see last week held form as we got the bull market treatment as none of these key areas really broke down. It’s very reminiscent of the 2004-05 market where the market came to ledge numerous times and never really broke down. But if I have to pour cold water on anything it’s the VIX which is challenging the low near 16 again. In order for this rally to continue what we need to see are these intraday pullbacks which tend to reset the oscillators.
Finally, isn’t this another Fed week? What we see much of the time is their not so clandestine approach of buying Treasuries the first few days out of the meeting. What that does is temporarily depress stock prices as money rotates into the safe haven bond market. Why should this time be any different? At the end of the day we are a week closer to the Gann Master window/seasonal change point. Any pullbacks this week have the potential to invert by the time we hit next week. Last year at this time we hit an inversion as the February Arab Spring sequence concluded with the devastating sentiment with the Japanese tsunami.
By the way, things are getting interesting at Twitter and we are worth a follow http://twitter.com/@jeffgreenblatt.
Click chart to enlarge