Edited By Jeff Greenblatt
March 25, 2009
This is my first post so a little introduction is in order. I’m a technical trader and analyst that started with a heavy Elliott influence years ago. Slowly I broke away to incorporate more support and resistance work. I’m best known for my cycle work and by bringing the Lucas sequence back to the forefront. While there are others who know much more Gann that I do, lately I’ve had great success incorporating Gann geometry into my methodology.
Last week, the rally was starting to become a crowded trade. There were aspects to like about this rally right from the start. The first one that jumps out is the fact we turned on March 10 which was the 9th anniversary of the NASDAQ bubble popping. Students of Gann know the importance of anniversary dates. We also had a very nice 3 wave sequence down in the NASDAQ where the legs from the January 6th high had a 1.618/.618 relationship. The Dow actually hit a low 37 points below an important Elliott target.
There are other relationships that suggest the March 10 was a 3rd wave bottom. This is a good news/bad news scenario. Before we get to that, why do I think this is a 3rd wave? I already mentioned the wave count but that could always be wrong and there always needs to be checks and balances. The main one here is the put/call ratio. I’ve mentioned it before but there is a lot of noise out there and you can really caught up in the action and forget about it. As we broke the November lows and went beyond, the p/c was no where near where it was in terms of fear levels we had in November. As we came off the bottom and got euphoric last week numbers were hovering in the .70 handle. I saw one intraday reading as low at .48. Two things to gather from that data which are big moves don’t usually come from such lower numbers and are we going to have to see a reading of .35 to top this thing out? We could also see true doubt in the rally when options players start loading up on the put side. They tell us on television there is little belief in this rally, I don’t believe that and until I start seeing the p/c go up on rally days like it did for much of this decade will I change my mind.
We are living in extraordinary times so anything is possible, it’s just not probable. It can happen but playing this game is strictly a game of probabilities. Just so you know, I want to see a turn around in the economy as much as anyone. I’m not one of these bears who keep rooting for signs the market is tanking so I can make some money. I monitor the chat rooms and see plenty of people like that.
The only mitigating factor to this discussion concerning sentiment is many days we’ve had pullbacks and selling legs in the middle of the day that does allow some oscillators to reset. So the rally continues. One of the hallmarks of staying power for any rally is those middle of the day pauses that refresh. You can’t see it on a daily chart but any intraday will give it away.
But lately we’ve tested either the upper descending trend channels or important polarity zones in these markets. Two of them in particular are very important. One is the channel line in the NASDAQ that connects the November 5, January 6 and February 9th dots which we came through on Monday and the other is simply 800 in the SPX.
Everyone is so caught up in this pattern and it does have greater potential. We could have a much larger pattern developing in the SPX that can take it to 850 or 900 which equates to over 8300 in the Dow.
However, today we finally got a taste of what I’ve been expecting since last Friday. The NASDAQ finally put in a doji with an open at 1527.59 and close at 1528.95. I know, it’s not perfect but it’s about a point off. Those of you who have ever taken a Nison course knows the Japanese think those of us in the West need to stop being so rigid in our interpretations and start embracing the spirit of the rule. Today was a good enough doji. We didn’t see a doji in another indice but when you look UNDER THE HOOD the SOX missed a perfect doji by 85 cents. And it left an upper tail which I’ll consider myself warned.
You must also know that a doji IS NOT A SELL SIGNAL, but it’s a warning sign. And this warning signs comes at resistance. If we get follow through tomorrow you could have an evening star.
So let’s say we did top tomorrow that would be the only bad news. There is some serious good news here. I’m not going to tell you the same good news you hear on television. My good news is very different. I’m not concerning myself as to whether THIS SEQUENCE saw the bottom. A lot of people think the bottom is already in although they don’t have a really good technical reason to back it up. What I’m saying is IF we are in a 4th wave here, which can go up to SPX 850 and Dow 8300; it means we are going to make an important low this year. This kind of a low wouldn’t just be a low, it would be a bottom. What I mean by that is if we have a low in place RIGHT NOW, can we really say we have an ending diagonal or true bottom to this pattern that began in 2007?
That’s what I thought. A low without a true bottoming pattern is going to be revisited, be it 3, 6 or 12 months from now. A low with a bottoming pattern could mean the bear market is over. So enjoy and trade this rally.
The first sign of the low came with the better chart in Copper. Copper is an excellent indicator for recession legs. Let’s apply some common sense to this. IF Copper is telling us a recession is coming, isn’t a low and important rally also telling us IMPROVEMENT IS COMING? And we’ve been on top of this for our STU subscribers with FCX and the Saturday Futures crowd with the HG chart. Now it’s hitting some serious resistance as well. Now we want to see precisely what the behavior on the Copper chart is going to be because that is one inter market relationship that is very valuable to us. It’s also valuable to institutional traders and money managers who derive confidence about the future just by looking at that Copper chart.
Here’s the next important issue for the week. I’d like just once that we could make one of my updates a Dollar Free Zone where we can talk about other things but I don’t think it’s ever going to happen. Last week the idea was if the Dollar broke the long term trend channel that contained the rally, chances are the stock market was going to hang around for a while. So that’s exactly what happened. The Dollar has come down to support, has overhead resistance just above in the form of a geometric radius line and it all ties in to a near 38% retracement off the high. I think I might have told you we sidestepped the deflationary depression scenario I’ve been talking about since November but lately since I was at the Futures panel in New York. Now of course the concern is very different. Now we have to worry about hyperinflation down the road. The answer to the continued rally in stocks largely depends on whether the Dollar decides to retest the break of the trend channel line near 87. Whether it can even get there will be determined if it can get beyond the RAD line.
Today the SPX held 800 which is a good thing but we are positioned on the chart for a further test of polarity. Look at the Jan/Feb sideways pattern and look at where we are now. That will tell you a lot.
Finally, I can’t let this go without a little poke at the bond market. During this decade, it’s seemed that every time there was a selling leg that halted prematurely we heard all kinds of hysterical protests about the Plunge Protection Team. I listened, respectfully. But I also knew that when the real day of reckoning came there was nothing government officials could or would be able to do about it. That day finally came. The other side of the coin was the PPT was something none of us could prove or disprove, so why worry about it? My mantra has been and always will be to want what the market wants.
Now you have a situation where the Fed intends to buy up Treasuries. Excuse me for being a simpleton, but how exactly is this supposed to work? Let’s say you or I rang up $100,000 in credit card debt. Can we just go and cure the problem? I think you know where I am going with this. This time we don’t have to worry about any PPT. It’s out in the open. We don’t have anything to prove, they told us! So we may have an engineered bond market but we need to be cognizant that Ben and Tim are still human beings and all of these universal principles we’ve been discussing in my work all these years will still dominate as long as human beings are making the decisions. But don’t be surprised if this market stays in a range.