The October time windows purged the surge at the top and held. A special thanks to Google, which tanked when it was least expected. These things happen when markets turn. Last week we had a surprise to the downside. Unfortunately, that also happens when markets start to correct. Don’t blame the messenger; I’m not rooting for it as I’m just a guy who wants what the market wants. However, knowing what it can do to the economy, let’s just say that “accepting” is a better term. I certainly don’t want to see this fragile economy slip back into a recession.
For the week, the SPX held first most critical support levels at the high before the high but was repelled to make a lower high which is not good. The only potential saving grace would be a triangular type pattern here which turns back up. If that doesn’t happen, then we have a bigger top. When the SPX turned back up the NDX held what amounted to a 1.618 extension down of the last leg up to the high. Without great Gann readings I was skeptical of the hold but it was good enough for a retest of at least where it came from. I thought we’d get a test of the 200dma on the last round which didn’t happen but likely now happens on Monday or Tuesday.
Tech is in trouble as its losing not only Google leadership but AAPL as well as this. But I have a point on my charts which really amounts to the point of no return. We are not there yet.
Check this intraday SOX chart out as it’s extremely interesting. The blue line is what is called an ‘attractor line’ which is a term taken from Chaos Theory. What it does is attract the price action. These attractor lines are becoming an interesting new feature in our newsletters and training program where I’ll teach you how to trade with it. In any case, that’s just part of the story. The weekly chart tells you the REST OF THE STORY. That attractor line which is acting as a magnet to the price action clusters at a larger connect the dots rising bottoms line.
You can predict what I’m going to tell you next. If we breach that cluster it could be goodnight Charlie. If it holds, you have a pretty good basis for a potentially big rally as one can make the case for a completed large degree triangle. This pattern is sitting at 87 weeks so we could conceivably get an 89 week low at the triangle line. We could still get an 89 week low on a breach but if it breaches then we are looking at serious technical damage and quite possibly just a bounce trading leg as opposed to the completion of a corrective pattern. This is very important simply because it’s been semis that have been leading this correction lately.
A high in the market with the action the way it is certainly favors the challenger as we’ve noted over the past month. For the first time in recent memory a Wall Street Journal Poll has the candidates tied and in others I’ve seen Romney ahead by as much as 6 points. That’s quite a turn of events given the horrible campaign they waged up to the first debate. Remember, it was only a month ago that Peggy Noonan and other senior leaders of the GOP suggested they take a wrecking ball to the party and start over. At this stage of the game Romney resembles the St. Louis Cardinals who have been down to their last out 2x in the past 2 seasons and lived to tell about it. If there was ever a candidate who was peering over the cliff, this is the guy. People think he’s ran a great campaign since then. To be sure, he’s cleaned up the act and eliminated a lot of the mistakes that plagued him earlier but I have to tell you that it’s a huge lucky stroke for him these time windows kicked in a month before the election as opposed to a month after it.
On another related note, the Libya terrorist raid just won’t go away. If we look on this at a smaller scale we know that in socionomic terms bear markets create the kind of psychology where people tend to make goats out of prior bull market heroes. We’ve seen it over and over. I believe that as the market continues to drop the news about the Ambassador will not go away. Mr. Obama has to be real careful about what he says as he already getting heat for comments made on the Jon Stewart Show. Let’s face it, the President didn’t use the optimal choice of words but does anyone really think he is really that insensitive? I think not as the public has no idea the sorrow any President has to deal with. He’s always the guy (no matter who is in office) that has to meet with grieving family members in every unimaginable situation. The President meets survivors and/or grieving families of 9/11, those who die in the war, victims of natural disaster, the Aurora tragedy and in terror attacks like this one. It’s the toughest part of the job. What I’m trying to say is as social mood starts to turn down the tendency for the media will be to not let it go as people are feeling less about themselves. When you get angry, what do you do? You don’t let things slide so easily, do you?
Next page: Dollar analysis
Technically, the only other thing I wish to add is we had a complete recovery in the US Dollar which stands close to being in breakout territory. It made the secondary low I thought it would make the only problem is it took a detour as I didn’t think it would test the 80.26 level again. If it goes a little higher then traders will work off a higher low which should bring buying interest into the market.
Those of you familiar with my work know I’ve added a key ingredient about once a year. I’m very excited about these attractor lines. Here’s the theory behind it taken from Wikipedia:
An attractor is a set towards which a variable, moving according to the dictates of a dynamical system, evolves over time. That is, points that get close enough to the attractor remain close even if slightly disturbed. The evolving variable may be represented algebraically as an n-dimensional vector. The attractor is a region in n-dimensional space. In physical systems, the n dimensions may be, for example, two or three positional coordinates for each of one or more physical entities; in economic systems, they may be separate variables such as the inflation rate and the unemployment rate.
What I can tell you for now is these lines have the look and resemble trend lines. Gann figured out with his square of 9 how to interpret a 3 dimensional reading (a circle) based on a 2 dimensional price chart. Those of you with an Elliott/Fibonacci background know that markets are spiraling in all degrees of trend all the time. That’s wonderful, but impossible to identify on a 2 dimensional price chart. The attractor line helps us to navigate a multidimensional mechanism on a 2 dimensional price chart.
This picture is also taken from Wikipedia; it’s a visual representation of a strange attractor. You can see the multidimensional features of it. The truth of the matter is that people like Bill Williams in his landmark book called Trading Chaos and his Investors Dream software identified strange attractors years ago. At the end of the day, the patterns we follow have very similar qualities to the mechanism you are looking at. Luckily, you don’t need to be a rocket scientist or Quantum Physicist in order to trade. But our understanding of the importance of quantum mechanics as it relates to financial markets is revealed at the rate of peeling an onion, one layer at a time.