Stocks risk a bubble by pushing too high, too fast

Fibonacci Forecaster

This is an elusive top, that’s for sure. Do you realize that we are midway through October and we have yet to see a correction that is badly needed to avoid a bubble? Last week markets outlasted bears who again couldn’t take it down despite an 89-day peak from the week before that netted next to nothing.

Quite frankly, I’ve never seen bears this weak in all the years I’ve been involved with the stock market. Is that to say we haven’t seen strong bull markets before? The period 2003-07 was strong, but when time windows lined up, markets reversed course. Here we have a condition that even when bulls have the wind at their backs, they have nothing. Time is running very thin because the seasonal factor works against bears from the day after Thanksgiving all the way to the day after Christmas.

So on what do we blame the latest push higher? Technically, the timing was bad last week because the Greenback finally hit a near-term peak, and because of the inverse relationship you know the stock market has an easier time of it if the dollar is out of the way. Sentiment wise, there was a degree of frustration as the President came out to explain his fix of the ACA problem. The polling data is damaging. The President now has a 39% approval rating, his lowest ever. It’s a problem for a second-term president with over three years to go. Not only that, but the Democrats have lost 9 percentage points since the day the government reopened. While these statistics are not reflected in the VIX, it’s enough of an irritation to throw the euphoria off so the market doesn’t top. This week we are not only coming up on the 50th anniversary of the Kennedy assassination but the fifth anniversary of the 2008 NDX bottom on November 21. That was the beginning of the end of the financial crisis. This anniversary might be the last guard at the gate that could give us a top without a full blown bubble developing.

The week should start out higher based on this near-term chart of the NQ. Here we have at least an ABC up or what amounts to waves 1-3 of this sequence. You can see the 161 relationships don’t expire until we get to about 3430 or about 14 points higher than where this market is as I go to post. The second chart explains the near term activity of the dollar. There are two really bullish sequences near the high that will be exceedingly difficult for bears to take out or push down. Now look at the stronger/weaker annotations. The down move is stronger than the up move within the confines of this tight trading range. That would mean we should head lower but the bullish power bar leading to the high acts as a hedge of protection for the bulls. So if you are thinking we have the irresistible force against the immovable object, you are right. Micro action is on the side of the bears, while near-term support is on the side of the bulls. All told it means the price action should be higher by the middle to latter part of the week. That might be the last opportunity for bears to take the equity markets lower.

Last week at this time we were also warning about the calculations in the DAX. Mr. Gann is calling for a high in the European leader, but it’s not happening there just like it’s not happening here. They left an upper tail on November 7 but have only ended up retesting that tail with no more margin for error. As I look at other sectors I really don’t see anything in the way of disaster or danger. Housing looks mediocre, and banks look like they could hit new highs. Transports are starting to break through again, while the semiconductors are still at least two days away from seriously challenging the uptrend line.

Most of the biotech stocks are all over the map but the BTK chart itself is starting to bust through to the upside again. Once again the best the bears might be able to get is the consolation prize which is a shake of the trees where they get to eat for a few days but end up giving up again.

There is one other semi important anniversary. It was exactly one year ago where Pelosi, Reid, McConnell and John Boehner posed for the cameras as they set out to debate the fiscal cliff. That was the bottom of another disappointing correction for the bears. Okay, I’m sure you are as weary reading about possibilities for bears as I am writing about it. Is there anything that really moved me last week?

The week's big event...

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