BELTS, KINGS AND GOLD
The market attempted another pullback last week. Another pullback, another likely failure for the bears. The next thing you know the market will be back at a new high. Why? To figure that out you need to have an intimate understanding of candlesticks. On Thursday morning the Dow was down 180 and before you knew it they unearthed a green bar (CBOT:DJ). Where did that come from?
The green bar is called a belt hold bar. If its green, that means its bullish, red would be bearish. You can’t really begin to appreciate what happened unless you look intraday. So here’s a 30-minute chart (below).
The market gaps down but goes no lower. Bears get very concerned and start to cover. Some smart intraday bulls actually get the courage to come in. There is no tail because it’s a gap instead. It ends up being the low that many times leads to a rally leg. That’s why they call it a bullish belt hold pattern. The line at the low becomes support. In a pullback this pattern is only valid for bulls at a low and for bears a spike in a downtrend. It’s a fairly reliable pattern and since we are that close to the high it’s a reasonable chance we do get a high.
So we came out of the holiday with a shake of the trees. This was a mild shake of the trees because it only covered a couple of days. What you should do is go over any number of charts, even look in the Nison handbook and see how often this kind of formation produces at least a small leg up.
According to our calculations this makes perfect sense because the market overshot price and time symmetry or targets just about every way possible.
So risk was still extraordinarily high but if we didn’t get the calculations right on the money odds were whatever pullback did develop would be smaller by comparison.
Last week I put up a chart that showed you the market would be hitting 144 months off the 2002 bottom by October. That is a big window. However,tud an alert sent of mine brought to my attention that this very same October is going to be Fibonacci 987 months off the 1932 low. Wow, now that really is huge and it’s bigger than the 2007 pivot I told you about seven months ahead of time. Since this would be a very long-term cycle it could explain why every time the window from March until now has produced very little in the way of a correction. I’ve already told you October is the next blood moon. Now it’s also the biggest window I’ve seen since I’ve been doing this work.
You should know the 2009 bottom is tied to the 1942 bottom in terms of price and time. To this point THAT was the biggest cycle point I’ve ever seen. This is just speculation but if for some reason we do top in October it could send this market sideways for years to come, like the 1970’s. Why would that happen? To this point, the fact the 2009 bottom is tied to 1942 means it’s a generational low. It’s a very powerful cycle. But if we get a top tied to 1932 that peak could be just as strong. We’d have dueling high and low pivots which would be equivalent in strength which could put the SPX for instance in a trading range above the 666 bottom and the 2000 high or whatever it will be by the time October rolls around. The Dow stayed in a range from 1966-68 all the way to 1982. That’s 14-16 years. I’m not predicting that but if something like that did happen it’s conceivable we could be peaking by 2029 which would be the 100 year anniversary of the greatest crash in the history of financial markets. Just a thought. The takeaway is that October has the potential to be incredibly important.
Just in case you might be wondering if these longer-term cycles really works, the 1998 contagion panic found its low 3600 weeks (Gann 360) off the 1929 top.
Then we have the most favorable looking Gold chart in a long time. This year has been a big sandwich. It started well, had that pullback and now they’ve come on. Here’s what our view has been for Gold since it found the low.
What is the most important technical aspect of this rally leg? I contend it’s the big green power bar which burst right through the congestion on the way down. These are only daily bars. Once they hit and retested the bottom of the range on June 16 it took all of three days to obliterate it. Now the important part is the big green power bar becomes support. To give you an idea what could happen look at how AMZN’s power bar played defense like the LA Kings (see chart on next page). The impressive part of this chart is the congestion in Gold barely encroached the territory of the green power bar below. In case you were wondering this is the exact kind of thing we teach clients in our training programs. So I think the precious metals will end up higher and right now the crystal elects to look no further than the prior high in March. One step at a time gang.
That being said did you watch the drama surrounding NBA free agency? Cleveland is home to the rock and roll hall of fame. They just landed the 2016 Republican convention which is pivotal since the GOP needs to win Ohio to have a shot at winning. Now their very own prodigal son, Lebron James, has returned home. This is fascinating on many levels. But how many of you realize the origin of free agency in sports dates back to Curt Flood? You might remember him as the all-star outfielder for those great Cardinals teams of the late 1960’s. In 1969 the Cardinals attempted to trade him to the Phillies. Flood refused to go, even asking then commissioner Bowie Kuhn to declare him a free agent. Yeah, that was going to fly. Flood went so far as to say he was an indentured servant of the Cardinals who had a right to seek employment from any team.
Those of you who are younger might not remember baseball’s ‘reserve clause.’ That meant the team owned you and when your contract expired your only leverage was to holdout. Flood’s case went all the way to the Supreme Court who ruled against him. But it emboldened the players union to stick together. Oddly enough, there were two pitchers, Andy Messersmith and Dave McNally who actually played a season without a contract. An arbitrator named Seitz ruled they were free agents which changed the landscape of professional sports forever. Now the kid turned King comes along. The local kid abandons his hometown team to seek a microwave championship in Miami while in the process donning the black hat as far as the fans were concerned. I was at the Traders Expo in 2010 when the Mavs beat the Heat and it just so happened their parade passed right in front of our hotel the day of the Expo.
There were people from all over the country and I’ve never seen so many indifferent people so happy the Heat lost. If you are not a fan of the teams playing in the championship, do you really have an interest who wins? Unless you are from Argentina or Germany, did you really care who won? But most of the people at that hotel and the convention were rooting for Dallas. As we’ve found out a lot of people felt that way which makes this homecoming for Lebron all that more compelling. In the history of free agency there never has been one quite like this. I’ll be rooting for him now until such time he plays against Carmelo and the Knicks.