As September comes to a close we now are working on a high around the seasonal change point. My clients learn quick as one of them sent me a key price and time square for the NASDAQ. He inspired me to started digging a little deeper and found the recent high to be 66.5 months off the March 2009 bottom. You know the SPX bottom is 666. We have a perfect price and time square for the SPX right now. We still have a week and a half to go to the blood moon. Concerning the blood moons the prophecy experts tell us every time we’ve had a tetrad like this world geopolitics has never been the same. The two most recent examples were 1948 and 1967. This one is going to hold form as well as free nations of the world are confronted with a barbarism equal to or perhaps greater than we faced in WWII.
We cover geopolitics here but I prefer to tie it to socioeconomics so here is what people need to be aware of. Each new major war is found on an entirely different plane than the prior one. The French spent the entire 1930’s developing the Maginot line because WWI was all about trench warfare. The Nazis blitzkrieg stunned the world and made trench warfare obsolete in about 5 seconds. The same thing is happening now. Nowadays, one person can come across the border and create more damage than a whole army had they been able to invade the homeland back in the 1940’s. So let’s make no mistake, the rules have changed and this is likely the start of a World conflict.
So we have 10 days to the next blood moon. In our work, since the market peaked last week we believe something is not going to get to a new high. This is an extraordinary time window as we hit 987 months off of the 1932 bottom and right there at the blood moon we’ll be a couple of days off the 144-month/12 year anniversary to the end of the Internet bear. Several months back I came here with a waterfall event type warning. Most of the time a waterfall event is not even possible. Our work is one of probability. I’d say a waterfall event possibility is around 1% overall given one throws a dart at the calendar for any given day. At this point the odds are much higher, perhaps 1 in 10 to 1 in 5 that we have a waterfall event like 1987 between right now and October 2015. That doesn’t mean it can happen at any time. If such an event were to materialize the highest probability would be either now or a year from now. Markets don’t crash in February or July, do they?
But as we come on the end of the cycle which is hitting 987 months, the potential is there for the window to hit hard given we may have an inversion by topping early. That’s the major reason why I can’t rule out a 1987 style event. What we’ll be watching this week of course is the U.S. dollar, which is threatening a pure breakout and we are finally to the point where a break here would confirm a secular bull market.
In equities I’m most interested in the HGX again. You’ll remember last week that Home Builder Confidence went through the roof but new housing starts fell in the ditch. Now for the same month, August new home sales hit their highest level in six years by surging 18%. People always wonder how they cook the books for the employment numbers. I have to tell you the August figures for housing have me scratching my head. I’d like to know just how they qualify the buyers getting those houses. Are these people prequalified or preapproved? Six or seven years ago they didn’t even check the paperwork. I just hope that next year we don’t find out something fishy was going on. Look at the weekly housing chart (below). My first impression is the pattern doesn’t support either the sales surge or the confidence numbers. Putting all that aside, the only thing I really care about is the pattern and right now they have retested the bottom of the same range they were at 8 weeks ago. In prior columns we talked about the major divergence since the high was made very early on in the year.
The rally will remain viable if housing turns up but if this breaks down from here it’s not a matter of if but when. Banking is working on an 88-day high and if I showed you the weekly chart it would be a bearish engulfing so we do have a reversal on a weekly time frame. So housing, banking and the SPX are in trouble no matter how you spin Friday’s better day.
We’ve discussed bearish conditions to this point. Do I have anything bullish to tell you? In fact I do as the Shanghai Composite Index (SSE) overcame a very bearish formation at its recent high and quite possibly can flip polarity from bearish to bullish. Below is the intraday chart where there were three failed attempts to go lower. Right now they’ve overcome it all and testing polarity with the idea of turning those failed attempts lower to support.
Wouldn’t it be weird if the SSE, being in a bear market so long while we had a secular bull market suddenly confirmed a long-term bottom? I don’t think they are ready and we’ve been looking for one more test of the bottom or break to new lows. I don’t think we’ve had the absolute washout needed to end this long bear market. Then I’d really like to see what the SSE does if we do get a correction.
Finally, last week I thought we could rally the first part of the week but run into trouble by Thursday or Friday. It worked out just the opposite where they hit it early and often. By the end of the week they were in recovery mode. In the very least we’ll look for an NQ move up to the trend line and not look beyond. It’s late September so we are looking for a non-confirmation or bearish divergence to develop.