There’s a very good chance the DAX has peaked. Now it’s October and we are in a new season where longer-term cycles can dominate. It’s also possible certain charts can peak early. The German market already has those readings. Not only does it have the readings, it’s already a week off the high.
Is there a mitigating factor to balance out Europe? China broke a good reading of its own last week but finally turned back up at its 162 week window off the 09 peak. It’s been off to a good start before and disappointed but the Shanghai market will have no impact on world markets this week.
They shut down the entire week for the Mid-Autumn Festival. So the mystery of whether their short covering rally will have to wait another week. But as I write this the Greenback negated a potential reversal candle on Thursday and many equity markets also unwound what they did on Thursday.
Last week was very eventful. Chicago PMI below 50 is the worst reading in several years and revised GDP for the 2nd quarter was 1.3% as opposed to the earlier 1.7%. The only good thing we can say about GDP is these are numbers from the PAST. The 2nd quarter was a stock market correction and the market has done much better this year than any of us would have hoped so later GDP figures should be better. That’s the good news. The PMI at 49.7% is contractionary and fell more than the economists expected. That’s not so good.
Why is GDP and PMI where it is? We can look in a lot of places but I think Congress deserves a lot of the blame. If I gave credit 2 weeks ago to Bernanke for inspiring confidence, this has been the least productive Congress since 1947 when another GOP Congress got in the way of the incumbent President. Memo to this Congress, incumbent Harry Truman won in 1948 and the same thing is about to happen again. This Congress has done everything in its power to not inspire confidence yet the market is up this year in spite of Congress. That will tell you under the surface that something good is happening and I suspect the next couple of GDP numbers will be improved.
All of which gets us to our major event of the week, IRAN. Ahmadinejad came to my favorite city talking tough but didn’t really bring it. Thankfully, when push came to shove he backed down and didn’t threaten Israel’s existence on Yom Kippur. I believe that if he came looking for the mother of all showdowns on WEDNESDAY he would’ve found it. The Israelis show a lot of restraint, more than they get credit for but if their existence was threatened on their holy day, one could no longer expect them to hold back.
I also believe this bunch in Iran is the most dangerous gang to come along since the Nazis. That’s why they get so much space in these letters. Iran is in a unique position to create so much damage to the world from an economic, geopolitical and religious view. Any war that involves them could be the start of WWIII. I don’t like telling you this because I don’t like being the messenger of bad news but so many people don’t get it. My job is to get it. SO one crisis point has passed. But they could have nukes within a year so this situation isn’t going away.
It was a week with the President on the defensive for a change, having to defend accusations they knew more about the attack on the embassy in Libya a couple of weeks back. But I have to tell you even as we have the first debate this week it will take a miracle for Romney to pull this out. The only reason I still give him a remote chance is the market is trying to top out. If for some reason the equity markets find a new high at any time going forward the election will be in the bag for Obama. I sound like Jimmy the Greek, don’t I? The socionomic factor has guided us well through this season.
What you should take from October 2012 is we have the rare confluence of a10 year anniversary to the end of the Internet bear market and the 5 year anniversary to the top of the bull market. These kinds of cycle points don’t materialize very often. In fact, only once or twice a decade. What you should also know is they are very deceptive and tricky. Time windows have a way of waiting until the exact latest point where one comes to the conclusion they won’t work and that’s when they do kick in. I remember the 07 window had a confluence of 262 weeks off the 02 bottom and162 weeks off the 04 bottom which gave us a big window of about 5 weeks. There were 4 high probability turning points and each one became a smaller turn but the last one was on October 12. As we know the SPX peaked on the 11th amid the euphoria when most people thought the direction could only go one way which was up.
Next page: Advice for the charts
My advice to you is follow the charts, treat the market like you would any other time but as we get closer to the middle of the month if the market turns back up have eyes in the back of your head to not be the last man in. What that means is keep tight stops and don’t get complacent. If you have long profits be sure you bank them as opposed to letting them run just a little longer. This is a time to be extremely cautious.
If we continue to sink there’s an outside chance we could have an inversion bottom by the late date near the 20th although with the VIX behaving the way it is the chances of an October peak still outweigh a low because I just can’t see the VIX getting anywhere near 30 in the next 2 weeks.
In an unrelated story, the New York Post (of all publications) reported that US investors pulled $300B out of equity markets the past 2 years and over $4 billion last week alone. Wow! Can you believe that? The public pulled out just as markets surged to new highs again. This is exactly what you’d expect from the public who are always the last ones to benefit from a bull market and plays into exactly what I’ve been telling you for over a year. Chances are we are in the very early stages of a new secular bull market. Just because markets are at new highs does it mean it’s a long term top. Tops are characterized by Aunt Mary, Uncle Bob and your cab driver being obsessed. The market truth right now is just the opposite which is why a true market top is still years away. So if we do top this month, with the information we have right now it’s likely nothing more than a garden variety bear which is enough to do serious damage but nothing generational on the order of another 2008.