Are New Highs Coming? Here’s How to Tell…

Traders spent the entire week screwing the pooch, demonstrating that bulls and bears are equally clueless at the moment. It suggests that the coming bear rally will likely be a tedious affair, about as much fun to watch as the 1893 New Orleans matchup between two determined lightweight boxers, Andy Bowen and Jack Burke. It went 110 rounds before the ref mercifully called it a draw. Will the SEC step in and freeze stocks at a permanently high plateau? My hunch is that the longer this slugfest lasts, the more likely the broad averages will make marginal new highs before a full-blown, take-no-prisoners bear emerges. More immediately, however, you should use 5845.75, the Hidden Pivot target shown in the chart (inset), as a minimum upside objective when the new week begins. It will remain viable as long as traders, entranced by Wall Street’s fun-house mirror, don’t stop themselves out with a stupid, pointless feint beneath last week’s 5650.75 low.

Expect ten-year rates to continue ratcheting lower, at least to the 3.959% ‘secondary pivot’ shown in the chart. The breach of p=4.242% was not decisive, and rates have yet to close for two consecutive weekly bars below it. However, the initial downside penetration reached the ‘sweet spot’ between p and p2, implying that an uptick in rates to the green line (x=4.526%) would be a short sale.  The chart is inconclusive about whether d=3.675% will be achieved, but an overshoot of p2 would shorten the odds. It is my maximum downside target, nonetheless.

Time for a tone change. This is a tough call, since I’ve been a hard-core deflationist since the mid-1970s after reading a persuasive book by the late C.V. Myers, and later another, The Great Reckoning, by James Dale Davidson and Lord William Rees-Mogg. Myers’ thesis was that the endgame for the epic credit blowout of the last 40 years would feature a dollar so strong that all who owed them would be crushed by imploding debt. The implied tsunami of bankruptcies would be even more devastating than the 1930s experience, wiping a dozen zeroes from the global balance sheet. The resulting shortage of dollars would become the catalyst for a Second Great Depression from which it would take a generation or longer to emerge. I still believe this is how things must end. But not now. Trump, who is verging on political omnipotence, clearly favors a weak dollar, and this will hold the coming bust at bay for a while. But the chart suggests the dollar is tough enough to stand up to such moderate debasement as Trump’s patriotism and nationalistic pride can abide. I have adjusted my outlook for the dollar accordingly: Look for weakness down to the range 95-100; then, an explosive rally that will end inflation for 60 years. _______ UPDATE (March 14): The Dollar Index has come down hard to the 102.99 ‘d’ support of this pattern.  It is sufficiently clear and compelling that we ‘should’ see a tradable bounce. If there is none, that would darken my outlook significantly. _______ UPDATE (Mar 21): DXY has bounced 2% from within 20 cents of the 102.99 ‘hidden’ support furnished above. The rally would be more persuasive, however,  if it exceeds several ‘external’ peaks ranging from 104.32 to 104.67 recorded in the first week of March. Here’s the chart.