The NQ is currently lower than it was exactly a week ago. That was the forecast, but it’s not exactly what I had in mind. The market flopped, but by Tuesday it held support, the bears gave up and we’ve come nearly full circle as far as tech goes. In terms of the Dow we’ve done even better. The countdown to the all-time high is in earnest. We’ve reached the point where if you run to get a cup of coffee, the all-time high could be breached.
I’m willing to bet there are more than a few bears who never thought we’d be in this position ever again.
Last week, we had quite a bit of good economic data. You can see it elsewhere but housing and confidence numbers came in better than expected. The hope is the lousy GDP number in the 4th quarter is an outlier due to Hurricane Sandy. However, economists predict the Sequester is going to trim GDP as we go forward and that’s the problem. Right now the market is telling us it believes the good numbers are more important than the looming budget cuts. Maybe with the seriously low VIX the market still thinks politicos will come up with a way out. As you know complacency still is the theme of the day. I don’t believe that. I wouldn’t have thought so but it appears the market can sometimes be a perverse mechanism. As you know, sometimes in earnings reporting season individual stocks go up when they announce layoffs. This could be one of those times.
There’s 2 dynamics at work here. First we have the market and then we have the economy. A sidebar is the political commentary that goes along with this event. We just discussed the market; it seems bears gave up once again once prices got to important support. These aren’t the same bears from 2008 or even 2001. They are scarred by the events of 2011 and don’t seem to have the stomach to push prices below first important support. Then we have the economy and history suggests this sequester is a horrible idea. All you need to do is look at 1936 and 37 to see the advent of Great Depression II. It dismays me to see how many disingenuous pundits rewrite the history of the 30’s because so many haven’t studied the facts.
The truth of the matter is Roosevelt felt the heat from budget hawks to attempt to bring the budget in line. It put the New Deal and the Keynesian philosophy in jeopardy. In fact, many despise and discredit Keynesian economics to this day. I can’t say it’s a failed methodology because they really gave up on it before it had a chance to really bear fruit. All I can tell you is New Deal stimulus defeated a lot the spirit of fear prevailing in the early 30’s and set the stock market on a 5 year bull market. What is really wrong with that? At risk of being a broken record it was Hoover who determined the best course of action in 1930 was to balance the budget. How did that work out for him?
Everyone knows they have to cut government waste. Why can’t you get 20 smart people in a room with a real scissor and cut out areas that are really wasteful? Why can’t we get a bipartisan vision for the future of the country? You just can’t throw people out of work and expect good to come from it. Austerity has failed everywhere it’s been tried. All it really takes is one disaffected worker to go into some school, do the unthinkable and turn the whole country upside down. The problem here is that extreme politics doesn’t consider the social cost and implications to knee jerk policy which is what the sequester really is. They came up with some painful cuts because nobody actually intended for it to become law. Well, we discussed it last week.
So where does that leave the market? Just as dysfunctional and complacent as it was a week ago and a month ago. Markets have a perfect right to be irrational and they are proving they could be irrational longer than traders have money to bet against it. Right now the Dow has an excellence chance to get that new high and the SPX is sitting right in the middle of a small degree trading range. I learned a long time ago that the trend is your friend until it is proven otherwise.
We were willing to indulge a pullback until the sequester became reality simply because I’ve seen dozens of these crisis type situations resolve almost to the day the crisis point becomes a reality. It didn’t work out that way this time. However it doesn’t change the fact this is March and it’s the time of year for the Gann Master Timing window at the seasonal change point to the end of winter. It was always the better probability turn so now that we are so close we’ll continue to look for the high later this month.
The US Dollar remains higher and last week it broke through the turbulence of key resistance. It still has moderately higher targets, to about 82.68 and if that breaches we are looking at 83.40. Finally, we have Gold where the XAU is hitting the upper zone of a bunch of Fibonacci based targets from about 133 down to 120. It’s finally possible although not yet probable we could see a low in the precious metals.
Next page: China's role
We haven’t said much about China lately and that peaked back in February after the spring festival in a place where the square root of the high was 49.44 and the range for the move up was 495 points. How do you like that symmetry? It’s now 55 days off the bottom and we’ll see really soon if it’s an inversion high. These kinds of symmetries at the high are tough to violate.
Also, we need to watch the DAX because it stalled at the end of the week at a key resistance on the gap down.
Since Europe has been leading since Christmas this piece of GPS could be very important to what can happen here. If the bears think they have any shot at taking down the market this week I think we almost certainly have to see this chart drop. If it doesn’t it’s a given we’ll see a new all-time high in the Dow.
While we’ve remained focused on the events on Capitol Hill, the good economic news suggests we indeed are in a new secular bull market although it’s the very earliest stages. Since markets have been hovering around highs for the past 6 months it only stands to reason the economic data had to get better. After all, the stock market is still the best leading economic indicator.