OK, folks, this is it. We are in deep for time-window season. We are at the end of 233 weeks off the 2009 bottom and right at 161 months off the Internet top in 2000. We have a peak on some charts at 1619 calendar days of the '09 bottom. There is a seasonal change point coming in three weeks that coincides with the Fed meeting, which can still be considered the back end of this window.
Things to contemplate while we come off one of the slowest trading weeks of the year. Before we get to these markets. a word about Syria. I’ve come here any number of times this year warning about the potential of a geopolitical situation in the Middle East. It has come close to erupting in time window season. Here’s what I don’t understand. How is it the media leaks word about an impending action by the U.S. military? Why is this telegraphed? Were they really meaning to attack or are they just leaking to send a warning signal to Assad? If there really is a red line with chemical weapons, how can you not follow through? The president is in a very tough position. He put his line in the sand out there and now has put it in the hands of Congress.
If I’m North Korea, Iran, China, Russia, Pakistan or any other rogue dictator I’m sitting back and taking notes. Here’s what is even worse. The Assad regime is actually fighting the people we consider the bad guys. Would our Congress vote to line up with rebels and Al Qaeda against a coalition in the Assad army that includes Christians? Do we really want to replace Assad and end up with an Islamic Jihadist type leader in Syria? This has truly become a case of heads we lose and tails they win. But you can’t let this guy get away with killing civilians with chemical warfare. One has to wonder how much the stock market is going to dislike all of this.
You also have to wonder what arms need to get twisted in Congress in order for us to go in there to any degree.
Not only does Congress have to contemplate Syria, it’s time to get this debt ceiling debate going. Also, are we going to have tapering this month? Last September we were all caught up in the election. This year doesn’t lack for any drama either. As we start the new week/month we find several charts on the cusp. One of which is the Housing HGX which is holding a 61 day window barely and could either be the end of a correction or we could be looking down the barrel of an oncoming 3rd of a 3rd wave down. Funny thing in bull markets they never seem to happen. If Housing goes not much else matters, not even Syria. If the housing sector tanks the whole market is going with it, plain and simple.
The next challenge is the US Dollar which has lower potential if we consider the more aggressive bear outlook that has Fibonacci leg calculations to about 79.50. That hasn’t materialized but doesn’t mean anything except we may not have enough patience to see this through. The Dollar elected to find a low up to now on a lesser bearish calculation and is experiencing the best trading bounce since it topped several months ago. If the Dollar truly bottomed you can kiss the risk on trade good bye which means oil won’t get to its May 2011 target even as it’s so close. I’m looking for oil to retest the May 2011 peak so I’m not sold on the bottom for the Greenback just yet. In fact, Tuesday could be a key inflection day for the Dollar because the up move has 5 little waves right now as I write this.
So with all the charts and all the possibilities is there at least one we can dig into which could give us a proxy or indication of what we should do with our own favorite trading devices?
In fact there is. It’s called the DAX, lately leading to the downside over there in Europe. It’s a very sketchy pattern and I have to tell you, I’m a whole lot more concerned about the DAX leading down than I was satisfied to see the CAC leading to the upside during August.
On this very choppy chart I was able to decipher an A and 161A level for the low which the action has responded to and filled that gap on the way down. We have an important gap down; we have an important gap up. Which way will it go? The way it does go should influence China which could influence the rest of Asia, Australia and the risk on trade. Ultimately you see it in the Greenback and finally on the SPX.
Next page: The bigger picture
Bigger picture, we could still see at least one more high somewhere in the stock market because these are huge cycle points, having developed over weeks and months. The trend is still your friend until proven otherwise. It’s tough to bet against the bull but we haven’t seen enough of the bear to have any confidence in it. That could change at any time. Follow the charts that are at inflection to start the week and the rest ought to take care of itself. Coming out of period that was characterized by its instability one shouldn’t rush in and make a statement. Let the market come to you and take it one day at a time right now. Even for traders operating in the unsteady environment of the usual uncertainty, this market has more questions than answers.