Stock market highs lack conviction

August 19, 2012 06:36 PM
Price action will show the way


Note: This week and next week will be an abbreviated column as we are on our late August hiatus.

What I want to impress upon everyone is how concerned I am about these markets once again at the highs with so little conviction. Yes, the VIX is low and I find it weird that sentiment is so complacent given the state of the economy. It’s been said that markets are always right and you should never fight the tape. It’s true because markets can stay emotionally irrational longer than your bankroll can hold out. So the correct play has been either long or to sit this one out.

The dollar chart I have for you is similar to what we’ve seen before. There’s a cluster of trend and Andrews lines controlling the action. The action has not played its hand yet.

Last week I saw 3 videos with the ‘disaster’ theme. You may have seen them. 2 came through viral emails but the 3rd was in the trailer for the movie, “2016 The Movie.” Each of these suggests the US economy is about to hit another ice berg. One theme suggested that on September 30 the bond market would start to unravel as foreigners withdraw out of Treasuries. I sincerely doubt the Chinese are about to do that unless the geopolitical situation we discussed last week becomes grave. But my level of concern about the September 30th date comes from a very serious Fibonacci time window for the entire 30 year bond bull market. At that time we enter the 1618 week time window for bonds. Here’s the potential news. While the stock market hits the 10 year anniversary to the end of the Internet bear a week later, because of the inverse relationship of Treasuries to equities only one of them would likely be hitting a peak in at that time. Personally, I’d much rather see Treasuries hitting the peak because it would equities could be hitting a low. Interest could slowly rise over time under that scenario and we may not feel the rise in rates for several years.

But if we consider the potential of a high in the stock market this fall because of the sinking VIX we may be on the cusp of a brand new bear market which is never a good thing. All of this is just intelligent speculation at this point. But with the late summer last run to the beach before the kids go back to school season upon us, I suspect not too much to happen in the coming days. That gives us precious little time to get the cyclical inversion pullback needed to produce a low as opposed to a high in the stock market come the big cycle points. The other point is I’ve never seen a time in all the years I’ve been doing this work where so many feel (whether it’s right or wrong) the economy or market was on the edge of calamity with the VIX this low.

Right now we have a risk on trade in oil which remains elevated. Have you seen Shanghai? It can’t get out of its own way. It’s retesting its low while the Dollar is on a down sequence. It’s retesting its low while the stock market is back near 2012 highs. Something clearly is not right and the market is telling us that either China or the US is wrong. While it’s true the tape is always right, groups of traders can and will be right for a short time but when they run into larger degree cycles can proven to be wrong. To prove this theory all you need to do is look at Euro bears and how they’ve pecked away at small profits all year and last year but eventually fled for the hills as they were crushed.

If the current condition continues we are certainly building toward an important top this fall. The good news is there’s still enough time for an inversion that will prevent it.

dollar, technical, fibonacci




About the Author

Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.