Your Economy (No Politics)

[Bullwinkle]

CYCLE Turn on/around May 17th

As expressed in my previous cycle post with which this post replies, I was looking at a small turn on/around Monday the 10th and thought (hoped) that quite possibly the double bottom break at the 200DMA would hold, otherwise a continuation down would ensue. At that time I was leaning towards the former and as we now know that just was not the case, although we did make a double bottom at the Nov '03 lows of 1878. Of course I would like all of my calls to be right, but one thing I have learned is that you must remain flexible. In some previous posts I had mentioned that I was looking at the 17th as a window of opportunity that was about to slam shut. Well what a difference a couple of weeks can make as I have changed my outlook for the upcoming turn date, but before I get into what it is that has changed my mind let's reveiw the past weeks Econ #'s.

This week we had a full plate and like many times before we witnessed the return of a mixed bag of messages being sent by this weeks indicators. Import/Export Prices are on the rise, the Trade Balance came in at record levels and the PPI came in strong. CPI was inline, but the Core rate came in a little stronger than most would like to see. Retail Sales edged up, Industrial Production doubled with Capacity Utilization and Inventories slightly higher. Then Michigan Sentiment fell off and the Initial Jobless Claims went back up by 13k. As for next weeks Econ #'s, it will be a relatively quiet week. We have the NY Empire State Index, Building Permits/Housing Starts, Initial Jobless Claims, LEI and the Philly Fed.

So what can we expect for the week to come? As I eluded to a little earlier I had at one time thought a retest of the Jan 27th highs was in store off of the March 24th turn. I was looking for sometime between April 26th-May 17th to be the last leg of that move and the window for such to slam shut. Well that window closed earlier than expected when we reached COMPQ 2079 in a rocket launch off of March 24th and we have yet to really get close to that level since. The upcoming turn date is a real turn, not just a mini glitch turn in the mix of things. It is a trend reversal type of turn date, a biggie. Couple this turn with all of the activity we have seen over the last few weeks and I think we have a fairly strong case for an explosive move to the upside.

Why you may say? For starters and beyond the turn date itself, we have seen quite a bit of fear and bad news take place over the last couple of weeks. Rising rates are still on everyones mind, Iraqi prisoner abuse, the brutal decapatation of an american civilian, etc., etc. The bad news is out, we have heard and seen a lot the past couple of weeks, all just short of a terrorist attack itself. Then we have some heavy Put action in the markets. The QQQ 34-35 strikes combine for over 1,000,000 strong, MaxPain is at 36 and we have Options Expiry dead ahead. When these Put holders begin to cover we will shake, rattle and roll. The Summation Index is in the dirt, the $VIX is at 20 and $VXN nearing 30 (coincidentally nearing a double top from back in Nov '03). A basic roytation out of energy and cyclicals has taken place and the pricing in of a rate increase has been put in place (overkill some might say). Then on top of all that we have some very intriguing chart patterns on the COMPQ developing. Below is a look at the COMPQ over a 3 year period. Here are some patterns (one of which I mentioned earlier in the week) that may or may not come to fruition and as always are open for interpretation and comment:

Possible C&H or Inverted H&S in progress...


Double Bottom at 1878...


Once the 17th comes and goes we will not see another turn date until June 8th. So if we do not get the trend reversal turn that I think we are about to get, have your scuba gear at the ready because we are in for a dive...