Here we are at the most important trading week of the entire year. You’ll never hear about this on the business channels, but Gann designated the March change of season as the most pivotal cycle point for markets of the entire year. Longtime readers of this column know I’ve come up with all kinds of names for it through the years. The bottom line is if you are looking at a chart at some point in the year and can’t make out the cycles, chances are it will calibrate to the March seasonal point either by trading or calendar days. The fascination this time is the Fed announcement falls right in the window when it usually hits a handful of days off. This week we start of a whole new era of fun with Powell in charge as we are clearly out of the quantitative easing era.
Coming into this week the Dow calculations were as tight as I’ve ever seen them. We’ve been watching a new technology most of you are unfamiliar with something I call balance bars which lead to balance lines. The coolest part of this situation is with the Dow top at 26616, the 116-hour bar comes in around the same latitude as the 216-hour line creating an interesting resistance point. From Wednesday on, the action was trapped below the balance line but within the triangle line, but it would not break. On Friday it came right back to the line and started to paint-dry. The action had a 49% retracement below the 25449 high and then 69% retracement above the 24668 low.
In the old NHL, this would be considered a tie! We have two titanic forces meeting in the middle. This is all developing on an hourly chart so the next larger time frame on the daily (the Gann window) is about to break the tie. I’ve never seen anything like this. Then again, I only got this upgrade in my game and set of revelations in the past couple of years.
The calculations are so close we must split hairs. The bearish case has two possibilities. First, they are consolidating below the balance line. But in the bigger picture, a triangle of this nature usually has a bullish resolution but in cases where there is a 5th wave truncation, it usually happens if what is bubbling under the surface is so strong it will eliminate that bullish 5th wave. The logic of this discussion is under Elliott methodology the triangle is usually the 4th wave in the sequence and next to last of the trend. That being said, you go with the trend until it is proven to fail.
As far as the bull is concerned, how many times have I come here telling you the bull has looked into the abyss and failed to jump? That’s the major characteristic technically that separates a bull and bear. Bulls come to the ledge but don’t jump. But there is always a first time, isn’t there? In early trade on Monday morning, the triangle line broke which is an indication, but we need more than an hour to establish a larger time frame break. The first indication coming into the new week is the triangle is resolving to the downside. If it weren’t for the Fed/cycle situation coming up in a couple of days I’d say this is it, but markets are in a very dangerous situation and could still turn on a dime. If this is really the bears moment, there will be a lot more where this came from and you only miss the start of it. Following the logic here, if the pattern isn’t giving us that 5th wave it means something big to the downside is brewing under the surface. Remember, it was Bernard Baruch (Warren Buffet of the 30s) who said he didn’t care about the first or last 10% of a move, but he surely wanted that 80% meat on the bone.
Part of the problem is Facebook is getting crushed. I’m not even going to try to explain this Cambridge Analytica scandal. Briefly, from what I read, this firm or a representative of the firm created an app to obtain data from 50 million users. The firm worked on Facebook ads for the Trump campaign during the election. The app in question prompted users to answer questions that would allow Cambridge or it’s academic person (as explained in a CNBC article) to create a psychological profile. All the users volunteered the information so it's not like this was user information that was stolen as in a real data breach. The problem is the guy who created the app called “this is your digital life” was already affiliated with Cambridge in some way but they are saying Cambridge obtained the data without Facebook’s consent and didn’t delete it. But if they already had the data, is it important they delete it? Who really understands these technicalities? All I’m going to say, something is not adding up. Want to know the real truth? From a low of 167.18, Facebook peaked at a 67% retracement to the top. It hovered around that high for 4 trading days before this it broke down. Most important here is whatever happened created a sour mood as market participants revealed they were looking for an excuse to dump stocks.