Kontent Review

He is worth reading, but I'm putting this up a day late, sorry! 

Edited By Jeff Greenblatt

March 28, 2006

Greetings:

It was the first week of January 2001, specifically THE SECOND TRADING DAY OF THE YEAR when I had my first REAL FED EXPERIENCE because there was real cash on the line that day.  I was short a basket of internet stocks (who wasn't) that day.  Memory fails me if that was the FIRST rate slashing of the cycle but it certainly was the first rate slashing that came at the discretion of Mr. Greenspan to act between regularly scheduled FED meetings.  That much I remember.  With no warning they lowered interest rates that day and all of my internet stocks went parabolic through the roof.  My boss, who was still vacationing in Italy, called fearing the worst which I confirmed.  I had been in Las Vegas that weekend celebrating the new millennium.  I think I should have stayed an extra couple of days.....

I survived that experience and slowly over time Fed days improved over time for me.  What I've learned and you probably have as well is that FOMC meetings are market events to be strategically planned for, must be dealt with carefully and are each unique events where no two are exactly alike. One thing you can take from is it doesn't matter what they do, but they usually don't give the market what it wants.  If you can understand the hype and hysteria that starts leading up to one of these events 3-4 days prior you'll do well.  Understand the universal mind that is the mass crowd psychology behaves like a spoiled brat and if you understand the game that the FED is likely to scold the child or in the very least not give the child what it wants you can realize these Fed events become fairly predictable.   I've read or listened to the talking heads mention there would likely be a hike but it should be the last one.  People come to expect that and when they raise rates and announce on top of it they reserve the right to DO IT AGAIN, people get upset and the market sells off.

One never really knows what to expect because the charts over the past few years have reacted like the Richter scale but today those who were following the intraday commentary saw we did a fairly decent job of navigating through it. To be fair, this was one of the tougher patterns leading up to the zero hour but we did not get sucked in by that spike this morning because it seemed to be TOO EARLY to be taking off.  Also, for the past four sessions, I've been using the SOX as the guiding light and as the markets were lifting off this morning, the SOX was still lagging. 

It turned out to be one of my best FED experiences ever.  Thank you Mr. Bernanke and welcome!

THIS AND THAT

There were several of you who wanted to know why I like Jeffrey Kennedy.  Keep in mind that Prechter/Hochberg have that GSC bear market agenda but they have excellent analysts in their employment.  You can spot holes in just about any analyst's game (Kennedy and myself included) but Kennedy happens to lay out a running triangle as well as anyone I've seen.  If you can lay out a running triangle correctly, you can increase the percentage of time you will know which way a triangle will break.

Finally, my web designer tells me the new website should be ready in July.  This is behind schedule but suits me just fine since my own personal situation has in reality set me back at least a month.   For the multitudes of new readers, you get an extended chance to test drive everything here for free until then.  However, my strength is FINALLY coming back and I'm almost at 100% so that means all of the plans to turn this embryo service into a world class product are close to being back on track.

THE STOCK MARKET

Last week the NDX bottomed in an area that did not allow us to rule out a bullish expanded flat pattern.  While we still have not taken out that low we still can't rule that pattern out.  However, the bullish case took a serious hit today.  Last week I devised a credible strategy of wading through the noise and simplifying what we needed to follow in order to stay one step ahead of the game.  Follow the SOX, and it certainly isn't the first time and won't be the last time this strategy takes on added importance.  There are those of you who rely upon Dow Theory to confirm bull and bear cycles but someone ought to do some hypothesis testing on the SOX and NASDAQ/NDX to determine which is the right side of the trade.  In reality, Elliotticians are supposed to follow an important chart that has the clearest wave count.  If you've looked at the Dow or SP500 the past few days you know those were next to impossible to read clearly and perhaps misreading the SP500 count is the only mistake I did make through this FED experience.  Luckily, the SP500 is not the leader of the market from one day to the next.

We had a potential running triangle developing in the SOX and to be sure, I don't know if Jeffrey Kennedy had such a count since he follows the Futures game.   But the situation in the SOX sure looked like one.  We started out higher on  Friday.  The SOX certainly had its chance to break higher but it never did.  As a matter of fact, it never did violate the converging trend lines for that triangle either as it needed to stay under 510 or the pattern would have been negated.   Today the NASDAQ and NDX spiked but the SOX just couldn't get going, that kept me from getting overly excited this morning.  Finally, the SOX broke down as anticipated first to the lower trend line and finally below the prior low at 492.36.  By breaking THAT LOW, any bullish interpretation of that triangle is negated unless the triangle IS MUCH, MUCH LARGER and that I sincerely doubt.  The SOX also closed below a rising trend line that has supported this rally for months and is in danger of a serious drop. 

The NASDAQ came very close to last week's high but once again FAILED AT RESISTANCE.  The Dow and SP500 are also at the upper end of their respective channels and have pulled back.  You certainly have to wonder if THIS is FINALLY the time we get that deeper pullback.  We are certainly setup for it here.  For once, social mood supports this view.  Did you notice the immigration rallies this weekend?  We don't do politics here so I'm not offering up what I think of the immigration policy but I will tell you with 100% certainty the fact they are cracking down on illegal immigration is a CONTRACTIONARY MINDSET.  Think what you will about what Congress may or may not do, but they certainly had no problem with illegal immigration in this country during the bull market years of the 80s or 90s.   Couple that with an angry crowd, (today in Phoenix students walked out of class and while marching on the state Capital building looting was reported) and you have the recipe for social mood rolling over.  Who said nobody walks in LA?  On Saturday a half million people showed up and if any of you have ever lived in LA, you know its hard to get anyone in Tinseltown too excited about ANYTHING.  On Friday there was a demonstration here in Phoenix where thousands showed up bringing traffic to a crawl all over this city.  In 16 years here I've never seen anything come close to that.  Leaving the politics of the situation out, clearly something is going on with social mood and it seems to finally be reflected in the charts.

Whoever is running that Plunge Protection Team, you better start buying tomorrow morning or you'll be asleep at the wheel.   They wouldn't let that happen, would they?

In reality, this might be the first time in a long time that we could pull away from the top.  I'm not stating  the final top is in place, but I think the market gave us a clue here today as it has had several chance to recover like many times in the past year but did not. 

BOTTOM LINE:  The SOX is sitting right below important trend channels in TWO DEGREES OF TREND.  In the very least, if this was a 4th wave (or X wave) triangle we could be close to a low and there is a cluster of support in the 470-475 region.   These are numbers first discussed here two weeks ago.  However you slice it, the NASDAQ failed at resistance today.  The exact nature of the overall pattern is still not clear but if we are still going up, it likely must regroup before it makes another charge at the high again.  The NDX has a shot at the bottom of the range here which would be the February or March low again.  The Dow has a cluster of support at 11100 and the SP500 1260-70.  Before we get there, after 33 bars down on a 5min scale and 11 on the 15 min scale there is a good chance for a bounce tomorrow.  With a p/c over 1.00 we'll see what bulls can do with this. 

AUSTRALIA

The All Ords is down today after hitting a high of 5061.  Counting the reversal day in February your low to high is now 29 (Lucas) days.  What happened yesterday is what we call the NISON DOJI.  Pure dojis are where we close at the exact price point where we opened.  However, Steve Nison says the Japanese tell those of us in the west to chill out.  We are too technical and play it too close to the book.  Yesterday your open was 5045.10 and close was 5044.79.  The Nison doji is defined as a the open and close being within a buck.  You missed by 31 cents. Since you are 29 days up (a common relationship), 160 weeks up, near the top of the trend channel, put up a doji and gapped down today on the open you have a number of elements in place for a reversal.  All you need is some follow through.  I think if we continue down, you have an excellent chance of joining us. 

GOLD, SILVER AND THE XAU

The outlook here was that gold was in a B wave that was near completion.  Last Thursday it finally bottomed on the 54-55th hour of the trend which includes 18 hours up and 36 hours down.  We are now another 19 hours up but also 13 days off the low.  The two legs up are nearly equal as well as one is 24 points and the other 25.  Two legs nearly equal in terms of PRICE AND TIME.  All told we are 221 hours off the TOP back on February 2nd.  We've reached a point like other charts where we are up against a resistance zone which is the area from the March high to the February high (576-85 on the June contract).  This has the look of a larger sideways pattern and this could be the top of B right here.  So what could be going on is we've had a three leg affair down from the top for A, now a smaller 3 legs up for B and if it's going to drop, we would be close before a C wave would take it one more time to the bottom of the range.  Of course, this might not happen, but the chart has to prove it can get through resistance right here.  We are 13 days up but I'd feel much better about this outlook if for instance we were topping at 233 hours instead of 221.  We'll see, we could go sideways for 12 hours and then start a drop on the 233rd hour. 

Silver has no such problem as it continues to make new highs.  Like the All Ords, silver is also up 29 days from a February low and has started to put in a small body candles.  However this looks like another sideways consolidation.

The XAU put in a low with a first leg up and then a 2.61 extension bigger leg. This chart has an interesting relationship where the first leg off the bottom back on March 10 was 29 hours.  This leg from Thursday is 18 hours.  Here is a case of the Lucas series in action.  For those of you who are new, why is this important?  In terms of time 18 and 29 have that 1.61/.62 relationship so important to the Fibonacci sequence.   Recall the outlook here was for a leg to challenge intermediate resistance at 135-41.  We've done that.   Now we have a small gap at 134 we are filling but more importantly have to test if the area around 132 is going to become support by way of the polarity principle.  Overall, we have small degree time sequences that have just expired and will have to see if this next pullback cycle is benign or something more.

US DOLLAR

We had a low a week ago Friday and upon completion of the wave a short pullback. This leg came down to intraday support but more important turned on the 46-47 hour low to low cycle off the bottom.  That is a bullish sign especially since the bars that have followed are nice looking white candles.  We really haven't had much of a retest of the low and maybe by default, we won't.  I'd now look for a retest of recent highs now as opposed to lows.

BONDS

Recall last week we had a slow moving 5 wave sequence over a 7 day period.  The outlook was for a sharp reaction in the other direction.  We achieved that on Friday but all it did was allow us to fail at recent resistance. Today we broke through important support but DID NOT CLOSE BELOW.  If we were to finally break below this support that has held up this market for the better part of 6 months.  This is a floor in the market that has held interest rates from really starting an upward spiral.  Here is another test for you conspiracy theory buffs. Interesting how the stock market and the bond market are both at key places on the chart that could really create a lasting effect on the economic outlook not only for the rest of this year but perhaps for the rest of this presidential cycle.   We are here, right now. 

Today marks the 49th day of the current down leg in this cycle.  Sorry, but Lucas didn't bail us out of this one.  As a matter of fact, the most recent high on March 16th was the 198th trading bar off last year's top.  So this latest downtrend from the March high started on the 199th (Lucas) bar.  We may not hit a low here until the 55th bar of the current leg which is still a week away.

CRUDE OIL

We are sitting at the 61% retracement level of the down leg finally and also 28 days up.  This is another chart at a key crossroad.  Overall this pattern is very choppy so it doesn't look like it has LONG TERM UPWARD POTENTIAL but now it has to decide if it wants to make a run at the high. Due to the choppiness I'm surprised it got this far as I thought incorrectly it had a better chance of going down.  Whatever the case, tomorrow will be the key day.  We are also 139 hours up.  Tomorrow we could top at 29 days and 144 hours.  The market must make a decision.  IF not, it will continue on most likely to the 33-34 day cycle and the 162 hour cycle early next week.

Jeff

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