Another week in the wild, wild West. There are two important events we need to cover. Let’s start with the Fed. I think we’ve gone through a new portal with the Fed announcing a target for tightening that would be 6.5% on the unemployment rate and 2.5% on the inflation front. Thankfully, these are loose targets because we can get down to 6.5%, not improve the economy very much but end up with more people giving up on the workforce. Tightening at that point wouldn’t be very productive. I’ve heard a lot of people talk about how much the low rates are hurting the economy and how much this is the Fed’s fault. Really now, what are they supposed to do? You have a President and Congress that get absolutely nothing accomplished going on almost two years with fiscal policy. Being a student of the 1930s, Bernanke can’t just sit there and do nothing. Is he supposed to RAISE RATES? Understand that his hands are tied. I’m sure he realizes that all of the Fed actions are probably things he’d rather not do but he’s gettinging no help from the adults on Capitol Hill.
That being said, our new portal is psychological. I don’t think the stock market will like it; I think it represents a late-stage bull market because I can recall other late-stage bulls where tightening or the threat of tightening has caused some incredibly bearish days. The market is a perverse mechanism and now we’ll start to watch for good news on the economic front being greeted by bearish activity. If that really does start to manifest it will be a sign we are getting close to the end of this four-year bull. Remember, the 32 bottom spawned a five-year bull market and since the first bottom was November 2008 we are now working on year five.
The stock market hit some important resistance on Thursday and pulled back. Ultimately that could be bullish as it represents potential fourth wave activity in this bull as we’ve seen a potential fourth wave of complex flat action pay off with new highs in Europe. We could be following their lead right now. But a lower Dollar and lower SPX on Friday is a little confusing. Then Gold didn’t take off to the upside either. So do we have inflationary or deflationary activity here? That’s hard to say.
This chart of the SPY has the exact same descending resistance line as the SPX. Look at the weekly FTSE just below it. You can argue it completed a larger degree triangle after the election and now has made a new high that has violated our October major time window. What that means is our 5/10 yr window will not come close to recreating the sequel to the 2008. You doomsayers, you might need a new line of work as it’s just not going to happen. That’s not to say we rule out a garden variety bear phase that shakes the trees and knocks the coconuts all over the place. That can happen but these predictions of doomsday are just not in the charts. The FTSE progression starts in 2011 and is more progressed than our pattern, which is only coming off recent highs a couple months ago. But if we continue on this path, first we need to see this high hold a while and then see the larger trading range develop. All I’m saying is Europe might be the model we are following.
Also, have you seen the SSE? Gann came through so far as they had another marvelous week of short covering taking even more bears out of the market. Our view remains neutral to slightly bullish for the favorable holiday period. It’s always January I’ve been concerned about.