Markets for the most part have held up. There are a couple of weak areas. The NQ has lagged both the YM and ES in the Emini. Tech has been lagging because the Arca Biotechnology Index (BTK) has been dropping. Biotech is important but not as much as the banks, writes Jeff Greenblatt.

Transports (DJT) has been leading higher which is good for Dow Theory Bulls. But the banks, at first glance have been a mystery.

A mystery until you look at the bond market. Back in July I told you there was a good chance the countertrend rally in the young bear market had a high probability chance of being over. Since that time, it turned back, retested the high but didn’t make it. They rolled over again.

chart 1

On Tuesday, they broke below the low of the first thrust down which is now serious technical damage to the countertrend rally case. On Wednesday it tried to bounce which may explain the change of direction for the banks.

But here’s the larger picture.

If the market is so good, why were the banks declining? Many times, when banks lead to the downside, being the key economic lead indicator (the stock market), it is hinting at some deeper trouble. Have we seen the resolution to the Turkish lira crisis? The (USD-TRY) is currently tracking sideways but could still have a big drop at some future date. Is there some other crisis that hasn’t materialized yet?

I’ve also been tracking the precious metals since the Goldmoney Inc. (XAU) found a low at 138 weeks off the 38.37 bottom nearly three years ago. Gold has been a roller coaster but Wednesday the mining stocks on the XAU broke through key near term resistance which is the best indication we’ve seen in this complex in a long time.

chart

Here on the chart we see the combination of the 58% retracement against the 69.58 high at 59 degrees on a Gann square of nine net a very small reaction against the last gap down to the bottom. In a bad market that is the kind of reading that would terminate the move. Here it became a blip on the radar. We barely recognize that high. It could be an incredibly bullish event.

Why should we be concerned about this? If precious metals rally, chances are high the US dollar (USD) could have a mighty big drop. Based on the long term reading we had for mining stocks, a rally leg would likely be of intermediate to longer term in nature. If you’ve been reading about the Greenback, Russia, China, Iran and others have been trying to figure out a way to wean themselves off our currency being the reserve currency especially when it comes to oil.

Jim Rogers: Climbing US debt threatens US dollar as top currency.

China has introduced a petro-yuan and when you hit the search engine you’ll see all the major media outlets saying it will never work, never replace the dollar. They could be right. It certainly isn’t happening tomorrow.

But in this business, the crowd is wrong much of the time. Not being an economist, I don’t project the next 12 months from the prior 12 months.

All I know is a major rally in precious metals could damage the Greenback and the only time we’ll realize it is when it’s too late.

The bottom line is patterns are only in their early stages. But these are things to watch. Should Gold stabilize here, it may finally be time to take a serious look at it again. Thus far September has not been a graveyard for stocks and that is a good thing. But should certain technical events materialize as I’ve speculated on, we might remember September as a time when seeds were planted.

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