Financial markets kick off new year with big potential

Fibonacci Forecaster

Opening tick of the year: down. Are you surprised? You shouldn’t be. This market has been operating on euphoric fumes for quite some time. The climax might have been Bernanke’s going away present on Dec. 18. What’s a measly $10 billion among friends anyway? People were in a good mood and looking for an excuse to buy. Why mess things up a week before Christmas?

So the good feeling lasted through the New Year, and it turned out to be one of the quietest post Christmas trading weeks in recent memory. The only place I really saw the few bully the few was in the forex market where they took the EUR-USD up and straight down. I don’t know about you, but I’m not crazy about my holidays being on a Wednesday. It means more people than usual probably stayed closer to home. If the holiday is any day but Wednesday, people take at least a four-day holiday. Is it just me or when the New Year finally hit, it was so anticlimactic that I was hung over and I don’t even drink.

Thursday, which was the first work day of the year, had that feel and the mood of the market was just as sour. As I looked at the rise in the VIX, I couldn’t even pinpoint why it rose. It had to be the realization the holiday was over and so was the party. Here’s where we stand. The market gapped lower, and they tried to bounce it on Friday but that failed and they ended up even lower.

The next big turn window comes in the middle of the month, and for once it does not line up with the next Fed meeting.

We are looking at the next important window around Jan. 17, where we are 144 days off that great pivot low back in June. If what started on the Jan. 2 persists, you could get an inversion low at that time where the rally continues. But if the bears continue to be happy with hamburger helper as opposed to filet mignon, we could end up with a high at that time. It’s also right in line with the old all-time high in the Dow back in 2000 -- an odd anniversary of sorts.

OK, this is our first look at the New Year. I’m just going to share what is on my mind and what I’m looking at. First, we aren’t going to get another 29% year out of the SPX. All I can say about it is I’m likely one of the first individuals to tell you the likelihood for new secular bull market was high, and I told it to you two years ago. That being said, 2013 exceeded all of my expectations. The big time window for the Nasdaq bubble top at 161 months never validated and in terms of our cycle work, that explains the move up.

My biggest concern of last year and heading into this year is the bond market. Our clients have been trained to spot supply and demand imbalance points and since we released that work, the bond market was pinpointed as a trouble spot and that was when the 30 year was still 150. Now it’s at 130. I think it could eventually be at 90. I have no idea when this is going to happen, and it might not happen until September 2015. By the way, bonds turned down in the 379th month off the 1981 bottom, and it missed Fibonacci 377 by 2. That’s the biggest “tell” we have for a new bear market.

Next page: The yen and gold

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