Do you remember when the Clinton Administration kicked off? For the first 6 months it seemed that every issue that came down the pike was the potential turning point for the new President, even as he was in the honeymoon period. All of that Playhouse 90 really wasn’t necessary as we know now, simply because he ended up in the White House for 8 years.
So I really don’t like to come here and add any hype or Playhouse 90 when it comes to financial markets but we really are at one of those turning points that could affect the outcome for the rest of the year. Yes, I’m indulging the Playhouse 90 because I think we are at a critical inflection point where most of the technicals are literally on the ledge.
First of all, we come to yet another important time window at the June 21st Summer Solstice which is one of the key seasonal cycle change points in the year. As we come to this key turning point the major indices are all in various stages of retesting the March low. You know what I think of this test. Sentiment couldn’t have been worse in March. Well, I suppose it could but I don’t think anyone would like to see what it would be. It took an earth shattering event, literally to bottom out the market. Recently, the selling was met with a good deal of apathy and I was wondering what could possibly happen to get us close to those kinds of fear levels. All I can tell you is sentiment improved last week in a very perverse way. On the top of the list is the Greek debacle which once again took center stage. The Greenback seems to climb a wall of worry, yeah, European worry. Now the report coming out of Europe is no help is forthcoming on a bailout until at least July.
The next major headline was a report last week on CNBC that stated the housing crisis that started last decade is now WORSE statistically than the Great Depression. I know you can manipulate statistics to fit just about any situation but I find it really hard to believe things could be worse than the GD. But that’s not the point. Throughout this crisis, our baby boomer generation has had an incredibly hard time admitting what kind of hot water our financial system was really in. We haven’t many, if any references to a depression in any shape or form since all of this began in 2007. This period is non-lovingly referred to as the Great Recession. So I think any reference to the Great Depression is a step in the right direction. On Friday a report out of Investors Business Daily suggested the patch we are currently in isn’t so soft after all.
What does that mean? Simply put, it means we are likely reached the point of recognition. I’ll borrow from the Elliott community and take their word for it that the point of recognition is usually the middle of the correction. The problem is we don’t know if this is the middle in terms of time or price. Of all the charts sitting on the ledge the closest to serious trouble is the SSE which has an important Gann square out line at the 2640 level. This is not an exact science to it can violate slightly but as I’m writing this the SSE opened the week to the downside and if that’s a hint, the major averages will also violate their March low. From this chart you can see that not only is the SSE testing the long term Gann line, it’s also at the bottom of an uptrend line from a year ago and right near the bottom of the channel to the trend that started in April.
So the question I pose to you is if an end of the world type event like a nuclear meltdown didn’t create a major bottom, what exactly is a major bottom going to look like? Our view is also as long as the SSE keeps dipping there is no good commodity/risk trade. I think the oil market gets it as it’s now in a C wave down which broke the May low which was also an important Gann square of 9 reading. How low can oil go? If it elects the more bearish course, we could only be getting warmed up. What’s important about the oil trade is the break on Friday was obviously an advance warning that China might not hold my important square out line, and it didn’t. More importantly is the economic indicator that by breaking the recent support level, oil was giving us a no confidence vote, similar to what European leaders just did with Greece.
Do you remember when the Clinton Administration kicked off? For the first 6 months it seemed that every issue that came down the pike was the potential turning point for the new President, even as he was in the honeymoon period. All of that Playhouse 90 really wasn’t necessary as we know now, simply because he ended up in the White House for 8 years.
So I really don’t like to come here and add any hype or Playhouse 90 when it comes to financial markets but we really are at one of those turning points that could affect the outcome for the rest of the year. Yes, I’m indulging the Playhouse 90 because I think we are at a critical inflection point where most of the technicals are literally on the ledge.
First of all, we come to yet another important time window at the June 21st Summer Solstice which is one of the key seasonal cycle change points in the year. As we come to this key turning point the major indices are all in various stages of retesting the March low. You know what I think of this test. Sentiment couldn’t have been worse in March. Well, I suppose it could but I don’t think anyone would like to see what it would be. It took an earth shattering event, literally to bottom out the market. Recently, the selling was met with a good deal of apathy and I was wondering what could possibly happen to get us close to those kinds of fear levels. All I can tell you is sentiment improved last week in a very perverse way. On the top of the list is the Greek debacle which once again took center stage. The Greenback seems to climb a wall of worry, yeah, European worry. Now the report coming out of Europe is no help is forthcoming on a bailout until at least July.
The next major headline was a report last week on CNBC that stated the housing crisis that started last decade is now WORSE statistically than the Great Depression. I know you can manipulate statistics to fit just about any situation but I find it really hard to believe things could be worse than the GD. But that’s not the point. Throughout this crisis, our baby boomer generation has had an incredibly hard time admitting what kind of hot water our financial system was really in. We haven’t many, if any references to a depression in any shape or form since all of this began in 2007. This period is non-lovingly referred to as the Great Recession. So I think any reference to the Great Depression is a step in the right direction. On Friday a report out of Investors Business Daily suggested the patch we are currently in isn’t so soft after all.
What does that mean? Simply put, it means we are likely reached the point of recognition. I’ll borrow from the Elliott community and take their word for it that the point of recognition is usually the middle of the correction. The problem is we don’t know if this is the middle in terms of time or price. Of all the charts sitting on the ledge the closest to serious trouble is the SSE which has an important Gann square out line at the 2640 level. This is not an exact science to it can violate slightly but as I’m writing this the SSE opened the week to the downside and if that’s a hint, the major averages will also violate their March low. From this chart you can see that not only is the SSE testing the long term Gann line, it’s also at the bottom of an uptrend line from a year ago and right near the bottom of the channel to the trend that started in April.
So the question I pose to you is if an end of the world type event like a nuclear meltdown didn’t create a major bottom, what exactly is a major bottom going to look like? Our view is also as long as the SSE keeps dipping there is no good commodity/risk trade. I think the oil market gets it as it’s now in a C wave down which broke the May low which was also an important Gann square of 9 reading. How low can oil go? If it elects the more bearish course, we could only be getting warmed up. What’s important about the oil trade is the break on Friday was obviously an advance warning that China might not hold my important square out line, and it didn’t. More importantly is the economic indicator that by breaking the recent support level, oil was giving us a no confidence vote, similar to what European leaders just did with Greece.
I don’t mean to come here to ruin your Monday morning Starbucks, so is there any bullish news to speak of? The BKX did not confirm the new lows of the second part of last week. However, the BKX violated the March low a long time ago. But as long as the banks aren’t leading to the downside there is the chance of mitigation to the technical damage that could materialize this week.
The next issue is the Fed meeting on Tuesday and Wednesday and this one should be more important because the language comes out right on the time window. Not that I really care what the statement reads, the market is going to use it as an excuse to do its thing simply because conditions are ripe for an important reaction. As traders what we need to do is go with the flow because whatever comes out of a seasonal time window can set the table for the entire summer.
The other thing to be encouraged about is the recent apathy from the prior week is gone. It’s our belief that corrections or bear markets terminate when fear spills to the point where fear runs rampant and everyone believes the only way the price action can go is down. We are obviously not there yet since there is belief that the bottom could conceivably hold at the March low. There is a chance of that, isn’t there? So when you add up all of these factors we can see an important reversal this week but chances are it will be from a level LOWER than the March low.
Whatever happens this week I don’t think it’s the end of the corrective period from May or February as the case may be. The point of recognition is rarely the bottom although it could spawn an important trading leg. In summary, this is the point where we should get a turn for a trading leg or a gap down. We don’t predict what will happen; just recognize certain times of the year where we can get the most important reaction. This is one of those times. With apologies to the politics of the early 90’s, I don’t think you can give this sequence enough hype.
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