Stock market topping as complacency reigns?

Fibonacci Forecaster

Complacency is reaching new levels, not by virtue of the VIX but by statements made this week by the CEO of a publicly traded company. You may have heard the comments made by Howard Schultz, CEO of Starbucks. He basically said he doesn’t need the business of those people who support the view of traditional marriage. We don’t get into the politics of such discussions. To be fair I had a similar view last year when Dan Cathy of Chik-Fil-A offered up his views on the opposite side of the same issue. I defend each individual’s right to freedom of speech. What I didn’t like was the reaction by the mayors of Boston, Chicago and D.C. who basically said Cathy’s business was not welcome in their town.

While I support Mr. Schultz’ right to express his views I feel confident he wouldn’t have stated these views publicly if the VIX were at 40. I come from the W. Edwards Deming school of customer appreciation. In case you don’t know, it was Deming who is responsible for transforming Honda into the mega-power it became after the 2nd World War. I hardly think Mr. Schultz or any CEO of a publicly traded company can afford to alienate a huge segment of the customer base now or really anytime.

Last time I checked in Marketing 101, the cost to keep a loyal customer is much less than to attract a new one. I also believe our culture is crossing a very serious line when they allow prejudice of any kind to color how they run their business. That’s my socioeconomic observation of the month. For our work, this isn’t about politics. In the famous words of Michael Corleone, “Sonny, this isn’t personal, it’s strictly about business.”

So while the VIX may not have set a new low on the indicator, behavior is reaching new extremes that’s for sure. Why not, the SPX has finally surpassed the all-time closing high. Now it’s closing in on the all-time high and is a lock to get there simply because it’s a magnet to the price action. For those of us who are deeply engaged in the markets, our job is to figure out what comes next. As we know, the complacency factor in US markets has blown through most of the time windows we’ve kept track of during March. But as we know, the European markets have responded to time cycles all their own. My concern and your concern is the fact European markets have led to the upside since late November and now we find them leading to the downside. By my calculations, the FTSE is where it needs to be in order to be at an intermediate level peak. You can do the domino effect to see how it will stack up elsewhere. The first domino falls in China where the SSE didn’t hold the minimum level correction at 38%. That’s amazing considering the great start it had but it only goes to prove one point. These huge power bars coming off corrections are more sucker plays than anything else.

It took a lot of courage of convictions to tell you the chart would likely end up lower even after that big candle materialized. The reason the probability was lower as opposed to higher is simply the symmetry at the high given the square root and range. What generally happens most of the time from these readings is the pattern goes further than most market participants anticipate. So the first thought is China is related to the action in Europe and Wednesday was the big distribution day. Europe is finally at the point where it should make a bounce attempt so we’ll be watching to see how strong that develops.

But now the US markets are at 89 days off the November low. So they’ll be seriously ripe for a short to intermediate term turn by Tuesday or Wednesday as they surpass the magic Gann 90.

Another condition holding up US markets was AAPL. Isn’t it odd that the world’s leading stock which peaked in September at the last time window kept going but decided to bounce at just the time other markets became extremely overbought? It had an excellent calculation at the low in terms of our ratio work and in the square of 9. But it also traced out 5 waves up and started to recede last week. So if tech truly loses this type of leadership it’s going to be a headwind going against it.

After that I’m most concerned about the banks which have an excellent price and time symmetry going back to 2010. But there is no real technical damage yet. Do you see a theme emerging?

We have a lot of possibilities and if the dice roll in a particular direction then we’ll finally see the elusive peak. But first I think it has to touch 1576 to loosen the magnet. After that, if Europe continues on the new path it set the past week or so and China continues breaking to new lows, if the US loses leadership in situations like AAPL and the banking index we could finally see the elusive turn.

Next page: Time-of-year consisderations

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