Do we have “peace in our time?” With the election results in the Ukraine it may appear this crisis might be behind us for the time being. European markets that were open on Monday seemed to think so as the DAX and CAC soared to new highs. The new president is a chocolate billionaire Petro Poroshenko who led all candidates with 54% of the vote. He is friendly to the EU. As you know markets are terribly allergic to geopolitical crisis.
The initial reaction to the election should also be good in the United States but the market may be ready to throw everyone a curve ball. As you know we’ve been mostly bearish the past couple of months as the market has attempted to correct. In fact half the market has corrected while the other half is at a new high. I suppose it will depend upon your perspective as to whether you view the glass half full or empty. But here’s what I can tell you, normal healthy markets do not behave this way. I’m not going to come here and drink the Kool-Aid along with half of Wall Street and tell you everything is just fine and dandy.
We have another interesting time window this week. Starting on Tuesday the markets are up 233 trading days from the June low of a year ago. This window could be off a day or so due to the holiday but we are at the start of the window in the very least at 232 days. Here’s my point. The Dow is putting in what looks like either an ending diagonal wedge (or a portion of it) or a symmetrical triangle of which there could be a breakout down the road.
Let’s use the optimistic view for a minute. Historically what happens to these kinds of patterns is they attempt to break out and usually fail but on the failure to sustain they come back and test the apex of the triangle. That’s a process what could take several weeks. If that’s not the case and we really are topping then according to this pattern we ought to see at least one more high. Keep in mind I have a couple of very important Gann square of 9 calculations for the Dow at 17011 and for the S&P 500(CME:SPM14) at 1920.
Until these indices clear these numbers I will not get bullish again on these markets. At the rate we are going its possible for the SPX to be at the target on Tuesday or Wednesday. So imagine if these 2 get to their targets on the 233 window and the net result came because of peace in the Ukraine, how could we possibly handle that kind of euphoria?
If I had a crystal ball, I’d tell you right now who is going to win the Stanley Cup but I don’t. Here’s what I can tell you. The last time we had a very important top in the market it came as a result of a very euphoric event. You may remember the end for Osama Bin Laden. We’ve discussed it here many times. His end was a long time in coming. I remember traders, analysts, political pundits and others pontificate if we ever caught Bin Laden it would be the end of Al Qaeda/terrorism and the markets would stage a big rally. Instead they got him the night before a grand Gann/Fibonacci calculation in the oil market and the event turned into a major top.