How’s that austerity plan working out? The jobs number came in at 88,000 four years into the recovery. We are something like 80,000 behind last year’s pace at this time. What else is there to say? I’m going to leave that alone, but my sentiment here is about the bond market. It was only three months ago that the crowd thought the bull was over. Rick Santelli said the dumbest people around are those who engaged recently in fixed income securities who bet on higher rates and now seeing annuity payments drop. Not sure but I think I also heard Santelli talk about the end of the bond bull as well.
Something is not translating down to Main Street because it’s beyond description to see markets at all-time highs yet such a muddled recovery. It proves two things. First of all it means the entire stock market is going a lot higher in the long run. It has to. This trading community as witnessed two important tops in the last 13 years, and this one is nothing like the rest. But coming to the near term it means some dynamic of the structure of this recovery is not working out. Money seems to be in the hands of the few or we’d see more jobs. The jobs that we do see are in pockets of the country. There are 2 themes to the prosperity these days. There is an oil boom going on as there appears to be oil and gas jobs in places like the North Dakota. Of course there’s hi tech jobs in Northern California. But in the average American city for people looking for the kind of average American jobs people have sought for the past 40-50 years, it remains hit and miss. Until this problem is addressed things are not likely to change very much. In my view, the way it needs to be addressed is that some guy like Bill Gates or Steve Jobs needs to emerge out of his garage with the next technological wave.
What appears to be happening now is the market has finally peaked. Markets were looking for an excuse and the jobs number on Friday was IT. We’ve been watching the European markets all week long to see if they’d fail at their imbalance points and while they were leaning it took Friday to finally get it done. We’ve had clues and signs leading up to this point. Not only did the DAX peak in the middle of March days from the Gann window but also very close to 180 days off the prior highs in September. While our Gann window wasn’t a smashing success, we did get some precision. I’ve also been focused on the BKX which actually peaked the same day as the DAX. Since they are about 13 trading days off the high, I’d say the time window worked.
But markets haven’t topped together. The SPX test of the 1576 peak fell a couple of points short, fell to 1539 and now a little over 20 points off the peak. The real question is whether this peak as given us clues it’s a good place for a high. In fact it has. When we look at this move off the November low the high comes in a sliver off what I call the 161A point. The big leg is 1.618* the first leg off the low. Is it an A or 1st wave? If it’s a 5 wave sequence then we likely have a shorter lived complex consolidation before a final high. But a C wave up could be it. That’s the wild card.
The Dow has a similar configuration, only 1 time degree larger. The A wave from the Dow is the first leg off the June low from last summer. Sure enough, when we measure off that low we end up with a 161 relationship to that leg. What does that mean? Basically the same thing, we can’t yet rule out one more final high to this sequence. Remember 2011 where we had the rolling highs first in February and then in May. This chart can work out the same way.
Next page: Why worry about the peak...
What concerns me most about this peak is the complacency. The word I heard most on Friday was ‘soft patch’ again. What can I tell you, our favorite media types are just messengers to the sentiment on the floor of the exchange. But the term soft patch dredges up bad memories for me and it should for you as well. The last time we heard the term was in May 2011 which preceded the debt ceiling negotiations and the first European crisis. I’d much rather them tell us there’s going to be a recession. Why? The media always gets the sentiment wrong but at least we have a very high correlation of what it really means. I will tell you this, there’s a certain amount of negativity coming out of the tube as these disappointing jobs numbers are starting to wear people out. I’d be more encouraged if I didn’t hear the ‘soft patch’ bandied about. That tells me this new move off the high is not done even if the SPX goes on to set the record.
We’ve now reached the stage in the peaking process where we can end up with divergences and non-confirmations. Remember 2011, they started talking soft patch in February right at the start of the Libyan campaign. Markets fell back and bottomed right in that Japanese disaster but finally made the final high for the sequence in May with our perfect storm of a top in the oil market the day after they got Osama Bin Laden. My clients know that oil peak was a perfect confluence where Gann met Fibonacci at 903dg on a square of 9 at 609 trading days up. The theme through it all? You never heard them STOP talking about the soft patch. So here we are again and it doesn’t provide any comfort.