Are dollar and equities ready to reverse roles?

The geopolitical chickens have come home to roost. I don’t have to tell you the news; you’ve seen the heartbreaking scenes perpetrated by ISIS. I am going to bang this home until everyone in my posse gets it; 2014 is the 100th anniversary of WWI and this is the year of the geopolitical surprise.

According to Socionomic theory, social mood turns incredibly angry several years after a financial crash. This one is playing right up to every anticipation I’ve ever had when comparing to the panic of 1907 leading to the war.

To me, that we could be so complacent at this point in time boggles my mind. But that is the market we are dealing with. The markets are just a reflection of social mood. To make sure you understand this, compare the Dow Jones Industrial Average to a baseball game. If the Dow was up 100, it means mankind won today, just like your favorite team. If you are a sportswriter or coach you get to dissect the quality of the win. Did your team win ugly or were they dominant? Did they squeak by or did the other team commit five errors? It’s the same thing with the stock market. Did it go up on good volume? Is the pattern choppy or tight? Is there a divergence and rotation? You have to look at all these things to determine whether a move can be sustained. I tend to take it one step further because we are dialed into the time windows and market cycles. Yes Mr. Malkiel, stock markets can and should be timed because there is nothing random about them.

That being the case the next cycle we are looking at is for Aug. 16 which just so happens to fall out on a weekend. Now I’ve been looking for a low at that time but this rally took all week to get in gear and it’s possible it could turn into a high but we’ll see. What I am seriously watching right here is the greenback(NYBOT:DXU4) which had a bigger ABC target of 81.91 and is just shy of the mark at 81.77 but it formed a congestion zone late.

Let’s look at two charts. The first chart is very similar to the cocoa chart(NYBOT:CCV4), the only thing different is cocoa is on a weekly basis and this one a daily (see chart below). The similarity is the pullback being the bigger B wave. After the B concluded we were looking at around 81.36 as an internal target and sometimes that’s enough. But it shows that the dollar turned into a pattern one degree of trend higher. So now we are comparing this bigger wave to the size of the A wave.
 

Now look at the internal intraday structure of this new congestion area which started last week (see chart below). Here’s the problem. On the retest of the high we have a nice green power bar on the way up which stalled and got taken out by an equally good or better red power bar. Right now the sellers have the upper hand. The move Friday into Sunday night is made up of little green candles which probably don’t scare the big bad wolf. On an advanced square of 9 calculation the vibration turns out to be a really good price and time square. It’s not perfect but its close. In terms of the technical outlook what we look for is the original leg off the low to take out the last thrust of the last bear leg down.

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