Last week we had one of the better jobs reports in recent memory with 313,000 new jobs in February in the United States. More important was the reaction as traders overlooked the potential for rates to rise. It was likely a given already as Powell warned they would do so. Nevertheless, the long bond maintained the low and the relief for longer-term rates has sustained since Feb. 21.
But, as far as our work is concerned, divergences abound. The tech indices are hitting new highs. The Dow and S&P 500, not so much. Transports are not even above the highs of Feb. 27 coming into the new week and still wrestling with that high early Monday. Most interesting is the Dow, which has hovered around its balance line since it formed on Feb. 21. What is a balance line? It is created by a square out bar and it influences the action many bars into the future depending on its time frame. Yeah, I know, you haven’t heard about this anywhere else. Trust me, it works. My concern since the low hit on March 2 for the Dow was that it would hit that line again. It took the long path which was a consolidation below the line. It does resemble a mini cup-and-handle pattern.
Ideally, it would’ve consolidated right on the line but we don’t always get what we want. Now the whole Dow pattern is starting to resemble a big triangle. Triangles at this stage of the game usually resolve to the upside but allow me to warn. If this is a bullish triangle, it will be the next to last pattern in the sequence. If the Dow does break through to the upside we should be looking at a leg that leads to a much bigger top than the one we had at the end of January. If it doesn’t break through, you know the alternative. It would mean the Dow already put in the top.
What I’m watching right now other than this balance line business is two important time cycles. First, we have the annual Gann master timing seasonal change point window or whatever we can call it. As it turns out, this year’s big quarterly Fed announcement comes right on the date which is unusual. Whatever the case, the March 21 date is the single most important date of the year for financial markets and we’ll see many charts change direction within a handful of days.
The other consideration is the next 610-day window from the February 2016 bottom which does not materialize until July. The Dow 610 window from the August 2015 bottom already fired off for an average 12% correction for the markets. There is a good chance the one in July will fire off as well. For now, markets are hanging on, but the divergences are noted and in the longer term, it's not a good thing for the bullish case.
Let’s talk about this meeting with Trump and Kim Jong-Un. The best explanation for this comes from Prechter’s original Socionomics book (The Wave Principle of Human Social Behavior and the New Science of Socionomics). Many of you have read this classic. This is in no time to get political or controversial. Those who have this book go to page 340 and you’ll see a picture of President Clinton, Israeli Prime Minister Rabin and PLO leader Arafat in a peacemaking handshake. On the prior page, there is a picture of the atom bomb and concentration camp victims in 1945. The caption above the peacemaking picture reads, “as perverse as it may seem these photos represent an extreme in positive social mood and therefore time to become increasingly pessimistic.”
The caption on the prior page with the bomb and the camp suggests just the opposite. What does it mean? The fact we have the first US President meeting with the leader of the rogue nation is happening at a time when social mood is reaching an optimistic extreme. Its after the stock market has achieved months of new highs. Can you imagine with all the insanity in the world that this is the extreme in the positive social mood? If you don’t accept that, just look at the VIX. Believe me when I tell you the only other way the United States and North Korea would be meeting is on the other end of the social mood spectrum like the Japanese did when they surrendered in 1945. I’m looking at this Trump/Kim Jong Un meeting as an indication the only way peace would be discussed is as a result of a bull market approaching a top.
Turning to oil, it has been mostly range-bound since Feb. 21, and has been tracking closely to my view that a high was in, but it wasn’t the greatest possible readings we could have for a high and has resulted in a less than convicted pullback to this point. Right now, its stuck in an even tighter range with the Thursday low and Sunday night high each with good square out points which means they are both important inflection points.
Starting the week, the Dow was challenging the higher connect the dots trend line on this potential triangle. If this pattern plays true to form it should break out by Tuesday. In Elliott parlance, we could be working on D up right now which would mean a bullish triangle would stay in the vicinity of the horizontal line which is the balance line. That would be the idealized condition, it rarely works out that way.
By the way, while we are on the subject of balance bars, the same thing happened on the Transports. With a top of 11423, the 123 bar created a fulcrum for the action and you can see it touched it several times before breaking to the upside. Near-term resistance on the Transports chart is also controlled by a different balance bar, your hint is the number is embedded in the price at the top.
Finally, with tech, FAANG stocks and even banks doing well in early trade, its tough to be bearish here. It's early, but we may very well see the stock market rally into the Gann/Powell annual/seasonal point next week. Putting everything aside, given this is Powell’s first big announcement and the specific date it falls on, I’m counting on it being a memorable trading day.