We’ve reached the end of the Ben Bernanke era as he gave his final press conference last week. Gone was the tension as he seemed at ease and satisfied with his body of work and his legacy. As you know, I’ve been a supporter for two reasons. First, he is a great student of the Great Depression and was the right man in the right place at the right time. Sentiment has been against him since the beginning of the crisis. He told a story about how sentiment was 50/50 when it came to TARP. 50% said “no,” and the other 50% said “hell no.”
To all the detractors, what were they supposed to do? Balance the budget? In hindsight, they could have been more diligent about how the TARP money was spent. Let’s understand something: When a crisis like 2008 hit, the worst possible outcome is doing nothing. Because there is no such thing as on-the-job training, all parties involved must come up with a plan to get the patient out of intensive care. If it really is true we were over the cliff, all parties involved should be considered heroes. People are upset, and rightfully so, that the banks horded the money and still do, and it’s much tougher to get a loan now than at any time before they pushed the panic button. This is not Bernanke’s fault, as QE might have ended at least a year ago if not for the dysfunction in Congress that persists to this day. So we close the book on Chairman Ben as he rides off into the sunset.
Somehow the stock market limped into the 144-day time window, making new highs on the DAX, NDX, SPX, BKX, SOX and Transports either right on the window or within a day or two of it. We are in the home stretch of this window, which actually extends into day 146 (Fibonacci 14.6), but the first three days are the strongest, which means we’ll have a good idea if this window is going to validate tomorrow.
I know what some of you are thinking. This time window stuff doesn’t work because the market has breezed beyond every single one in 2013. I have news for you. Neither Gann nor Fibonacci is a crystal ball. If you are involved in financial markets in any way, your job is to evaluate risk. Some of you do it looking at earnings. Markets are not driven by earnings. Let me repeat that. Markets are not driven by earnings. They are driven by the reaction to earnings. But at the end of the day, the underlying structure of technical analysis is driven by Fibonacci, Gann and time. Right now, because the markets are in line with the best pivot of 2013, which was the June bottom, this is the best opportunity for them to change direction. If it doesn’t do it, we’ll know how strong the underlying structure still is.
There are a handful of scenarios at this point. One is the market peaks now and has a five- to six-week correction into the 261-week/five-year anniversary of the 2009 low period. Another is it continues into the March anniversary, at which time risk would be even higher than it is right now. Recall the last time we had a 261-week top. It was the most important pivot of the decade and perhaps our lifetime. Why am I not saying that this time around? Simply put, the sequel never equals the original. Then the timing is wrong. Markets tend to top and crash (if they are going to crash) in October. For some reason, markets don’t crash in March. Is it because the sample size isn’t big enough? We’ve seen October crashes in 1929, 1987 and 2008. But we did see an important top in 2000. It’s possible to top in March, apparently. A variation of the pullback into the March anniversary would be a sideways consolidation for the next few weeks and then have the rally continue ever onward.
Already we’ve seen some bearish activity in this window with Citigroup, which was down 4% last week on earnings. Earnings are important but it reacts to the window. I can’t explain this, nor do I understand it, but for many years when a time window would hit, a news event would manifest. The most famous example I can give you was when they took out Osama Bin Laden in May 2011 at the intersection of 609 days (Fibonacci 610) and 903 degrees on a square of 9 in the crude oil market. The next best example was the time Bernanke went up to the Senate Banking Committee in the summer of 2008, when the BKX was 144 weeks off its top. That was the time senators roasted him for his stance the housing crisis was being contained. I shouldn’t really give him a pass for that, but if he knew the truth would he really bang the table and risk upsetting markets? The senators sure didn’t as they grilled him and the SEC instituted a ban on naked short sales of banking stocks that day. It was Custer’s Last Stand as the BKX rallied for the next 10 weeks until the Lehman crisis hit. We are here now. I’m very curious to see what is going to happen not only to the news but I’m concerned mostly about the banking sector which has its own Gann reading.
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