If it’s President’s Day, it means we are already deep into February and getting close to the big wealth transfer. We already had one in January based on our time windows. The next one could possibly be the biggest one since the market turned in 2007. But I am now intrigued by the condition in Europe.
We actually liked the low calculations for Europe better than here in the United States. No worries, the rally extended last week as well. For the DAX it projects near the high even as we have an uneven wave count. It’s impressive because they were able to take it up against good bearish strength on the way down. Looks for all to see like bears took their profits and went back into hibernation.
The FTSE, skeptics that they are, has only retraced 61% of the move and was losing strength until Monday. See, even the CAC got to a new high. What does all of this mean? Even the French laugh when the CAC leads to the upside. While the rally is still here, obviously the smart bulls would prefer to see Germany lead and not to splash cold water but it’s the equivalent of the Dow leading our markets.
At first there was a bout of short covering to get the ball rolling. I didn’t get concerned about these markets and really all markets until a week ago Friday at the jobs number. Since then I’ve read too many stories blaming the weather. Yeah, the weather is bad, but it’s easy to blame the weather when there are other factors. Let’s not forget these are markets that went up five straight years. My concern here is we’ve developed a buying panic and initially it looked like they might be climbing a wall of worry until you looked at the VIX, which has done nothing but drop.
Is this the dumb money buying up here and this late in a bull market? We’ve gone far enough to realize it’s not likely going to give us a low in March. This is possibly very similar to the 2007 scenario I brought to your attention where the Russell 2000 topped for good in July, markets found a low on fear in August but topped again in October. When the VIX is at 13.57, risk is very high.
So if you get nothing else from this report, realize when the VIX is so low odds are we are close to getting hit again. Coming in March are the big time windows we’ve mentioned, but it’s also the Gann Master Timing Window that comes right on the most important seasonal change point for the entire year. I might have started this report with Europe, but I wanted to see how they would respond on a day the U.S. markets were closed. They were mostly quiet but did not take the opportunity to step out of the box in any way. That means bulls are still in control as we start the shortened week.
Most impressive has been precious metals, which are proving 2014 is indeed a new year. Most noteworthy is the action piercing through the 200-day moving average for the first time in about a year. That’s huge because it could have bounced off it and been repelled. It’s showing us that it’s ready for bigger and better things this year.
The theme up to this point has been more, bigger and better. What turned lately has continued. The stock market is better, precious metals are better but the dollar has continued to be worse. That might be the new story of the week. While Europe’s news is still based on last week, the Sunday night action in the Greenback is showing a good chance this drop has gone far enough. By my calculations on the Gann square of 9, we are at another one of those key inflection turning points.
Next page: The dollar's turn