The new all-time high in the SPX is…..1597. Yes, that’s Fibonacci 1597 and it’s not a coincidence it sold on Friday, preserving Mr. Fibonacci’s legacy at least for a day. But there were other signs on a weekly chart.
For instance, above is a long-term chart of the SPX. If we take everything from the bottom to the 2010 high we’ll call it A. Then we take 1.618 of A as measured off the bottom and we get the horizontal line which was taken out slightly in last week’s hoopla. That’s the real story of the week but we have another one that comes really close.
We don’t normally highlight this report on Gold but it’s incredibly noteworthy to see it break down from long term support on Friday. Let’s face it, it’s been asking for it for a long time. During the week we said Silver should perform better and it did until Friday. The true test was coming at the imbalance point which was never taken out. Important to Silver now it’s taken out the 161a line which very significant. These now have the opportunity to shed more price and end up significantly lower. The catalyst somehow was the fact that Cyprus is supposed to finance their bailout by selling huge reserves of Gold. Let’s think about it for a minute. While that may be true, if a seller comes in at ANY COMMODITY and dumps a big load at very important support the same thing is going to happen. This is fresh selling and the only difference here is we’ve identified who the seller is.
What is even more bizarre are the metals selling off without the big push up in the Greenback. We’ve seen over the years that when the currency and precious metal go the same way the higher probability is at least one of them is in a trading range kind of market. It could certainly be the case with the Greenback which is testing the recent flip up in polarity.
But Crude Oil is also declining at a time the Dollar isn’t rallying which is a no confidence vote in the economy. If you want to know what traders think of the economy, the best indicator over the past few years has been the energy complex.
Now on to how current events mix with a little socionomics.
Late Friday night a Huffington Post story (and I’m sure elsewhere but that’s where I saw it) it was announced the first place the Korean Kid is aiming is nukes is Tokyo. Quite frankly, I was shocked. The whole episode is shocking and it goes to show to what lengths a dictator will go to consolidate power. If you study the history of dictators, they all have one move for history. The difference here is most young dictatorships have internal purges. Saddam Hussein tested the loyalty of his military leaders, Hitler had the Night of the Long Knives and Stalin purged his generals to the point he weakened the integrity of the entire Soviet Army. But the Kid is looking to make a bigger splash. That’s just part of the story.
I’ve been following what China has been attempting to do in the North American market and Chinese energy interests have put down roots in Mexico and Canada. In the past 20 years the US and its European allies have taken NATO right up to Russia’s western borders, something Russia constantly complains about. The US has also developed a military presence in those former Soviet Central Asian countries as well as the western Pacific. According to a CNBC story the US plans to have 60% of its military forces in the western Pacific. That’s probably why the Kid is upset.
Next page: The Chinese strategy
But the Chinese strategy is very different from the Russians. With the US and Soviet Union, they match bomb for bomb. The crafty Chinese are more strategic. According to Sun Tzu in the “Art of War” the idea is to subdue the enemy without fighting. In 2012 China surpassed the US to become the world’s biggest trading nation. More important is they are using their newfound power to invest in Canadian and Mexican energy assets. The US imports 9000 thousand barrels of oil per day. Out of that 9000, 2666 comes from Canada and 1319 comes from Mexico which comes to 3985 and is 44% of our total. On April 3rd Mexican President Enrique Pena Nieto stated he considers China a strategic partner. “Mexico can be a gateway for China to enter North America, the world’s richest market.”
Can you see where this might present a problem? Not only is China our banker, but now they are going to supply us our oil too. There’s going to come a day in the not too distant future where they surpass us in economic clout by a much larger margin. You can be sure about that.
But here’s the dilemma. The Chinese are going about their business in a very intelligent way, if you are on their side. Do you really think the Chinese want to see the Kid rock the boat now? In my heart of hearts I think not. The Chinese have history on their side, the North Koreans do not. Can you tell me one example of a young dictator upsetting the apple cart and getting away with it? Even Fidel Castro was smart enough to coexist 90 miles from Miami.
So what does this really have to do with the market right now? Probably not a lot unless the Kid decided to do the unthinkable. If he does it will be a Black Swan because even the smartest guys in the room don’t think he’s that dumb. I tend to think the most important event of the 21st century is the transition for China to become the world’s #1 superpower. We are seeing it unfold right in front of our eyes. It makes news here this week simply because of threats coming out of North Korea.
What I’ll be watching this week are 2 charts. First of all we have AAPL which found a low 161 hours off its prior at the beginning of March. What makes this noteworthy is the low is also 61 hours off the late March high. So we have a condition where the true market leader had a cluster of 61/161 at the same point which is counterbalance to the rest of the market attempting to find that elusive high. We have a similar situation (without the timing symmetry) in Australia where their true market leader sector Materials had a furious selloff but now is in serious bounce mode.
The other condition I’m watching is something one of my students brought to my attention. Long time student Dennis brought to my attention that GS (Goldman Sachs) bottomed at 219 hours down after peaking on February 19 (2/19). This is significant because these kinds of symmetries tend to go longer than most market participants anticipate and it could be a case of leverage for the BKX. As long as the BKX doesn’t want to turn down, nothing really bad is going to happen to this market. Finally, even the bears couldn’t sustain prosperity. They had everything going for them on Friday morning but even the SPX left a lower tail. They just don’t make bears the way they used to.