They asked Art Cashin, one of my favorite stock market personalities, what he thought of Nasdaq 4000. Art usually gets it right, but he said the 4000 barrier was just psychological and there was really nothing else attached to it. In that way, he was right. However, the big number was not 4000; it's 4100. The market still hasn’t peaked, but the Nasdaq did work its way to 4069 in last week’s volume and storm-interrupted sequence.
It was an unusual week, not only because it was shortened by the Thanksgiving holiday, but the weather also played a factor. Holiday volume kicked in as early as Tuesday, and instead of a flat week, the few were able to bully whoever was there to kick the Nasdaq up near its long-term target.
Here’s the updated version, the same calculation we’ve been waiting on since 2010. There’s so much debate as to whether there truly is a bubble. But with a 161 relationship being perfectly normal and within the confines of the 95th percentile of a bell curve, we most certainly are not in bubble territory yet. Want to see a real bubble? The last time we had this discussion, the Nasdaq went from 1300 and change to 5000 in 18 months. Now it has covered most of the same territory in 56 months. This is hardly a bubble. The only reason anyone should think it could be a bubble is because of a lack of selling interest. We made it through September, October and November without a correction of any consequence. But due to this chart, risk is as high as it has been at any time this year simply because the 161 relationship between legs is the single most important and reliable Fibonacci signature. It doesn’t have to validate here. It can go to a 261, but odds are high that even if it ends up higher we’ll get a reaction right here. Perhaps as important is few people are looking for a pullback right now. In fact, they are looking for just the opposite. According to the seasonal factor, the period between Thanksgiving and Christmas is just about the highest probability rally point for the whole year. That’s why I was looking for a pullback in November, and it just didn’t happen. They can certainly hit it on Monday as the Nasdaq hits its number, but chances are the seasonal factor will only create a sideswipe. Chances are a full-blown correction won’t materialize anymore.
We’ll hear threats about tapering, but it’s not going to happen, not during the key holiday shopping season.
The Nasdaq isn’t the only key test coming this week. The other one comes across the Pacific in Japan. Here’s a monthly chart of the Nikkei, which peaked seven months ago as it hit a multi-year trendline dating back to the 1990s. This line has stoned every rally since then. What are the chances it gets through this time?
The yen contract hit the lower rising Andrews channel, which could be support. If this is going to hold and there is no guarantee it will, then the Nikkei would reverse at the high. Why is this so important? If the Nikkei turns, it could be the tell for the entire market, which is trying to put in that elusive high it can never achieve. But if the Nikkei breaks through, chances are the Nasdaq breaks through and they continue this rally through December.
I can’t help it, but my finer market sensitivity finds it hard to believe there is no pullback coming. This is from a person who has been exceptionally bullish these past few years. When it’s time, it's time. What you can take from these three charts is they are at extreme points and exactly where they need to be to get an important reversal.
As I’ve gone through some of the important sectors they don’t necessarily look like they need to top, although Banking and Transports are getting extended while Housing still looks okay. The SOX still has a near-term calculation that could get it to 525 while it’s sitting at 510. A new high for AAPL is important because it took out the key bearish power bar at the October high, which means there was somewhat of a short squeeze to get to where they are now. The week ended with 3 aggressive soldiers and if it weren’t for the light volume this would be exceptionally bullish as opposed to just being bullish.
Next page: Where we go from here...