Wasn’t it just a week ago we were talking about some accord in Geneva between the politicians and diplomats to ease the nerves in the Ukraine? I guess someone conveniently forgot to tell the reactionaries who weren’t about to give up those buildings. They never planned on giving up those buildings. So markets rallied on the news, adding to the tally achieved on the blood moon.
Here’s what nobody is talking about. In a bear phase, people slide down the slippery slope of hope. But to get the ‘slopa-hopa’ working first markets have to build a hill before they can slide down it. For those of you who ski, do you remember how you learned? Didn’t you have to take a rope tow up a bunny slope? Then you got to slide down. I don’t know how else to put it to you but this exactly what is going on right now. Some of you will even dispute the fact the market is in a bear phase but I’m looking at a tech sector that topped right on the 5 year anniversary of the Haines bottom in 2009 and by Friday it looked for all the world to see that it was making yet another secondary high.
It’s a very complex market given the SPX made a new high out of the window and I told you we’d see divergences as well as have these patterns frustrate both bulls and bears alike. Here’s the bottom line. The year 2014 is going to be the year of the geopolitical surprise. So if you are still one of those who disputes whether we have a bear phase working this is a tale of at least 2 markets and the byproduct of the super low VIX is some of you are going to disagree with me. That’s fine as this is one of the most complex set of conditions we’ve seen in years and many just don’t get it.
Who do I most admire in this entire sequence? It’s the crafty Chinese and their SSE which peaked on April 10 and holds no delusions about what is going on in the world. It was just a couple of weeks ago that China turned in a halfway decent GDP report and the experts told us to forget about a hard landing. I knew that was the kiss of death. There is going to be a hard landing before the SSE puts in a long term bottom. Long-time readers to this column will remember that it was a couple of years ago where the experts predicted a soft landing for China and I told you their bear had several years to go. Within a year emotions ran hot and analysts started their dire warnings for the Chinese economy. The bear had done its job and the SSE turned in that incredible Gann symmetry low on Dec. 4, 2012. Since then they’ve had a couple of nice rallies, a fresh low and a pattern that has gone mostly sideways. How soon they forget because Shanghai has been in a trading range for the past 10 months. I’m telling you this because China is one of the few markets around that haven’t had a complacency rally since the Ukrainian situation flared.
Why should we be concerned about China? Aside from the fact it will affect Australian markets they tend to follow Europe and if Europe seriously catches the flu this week and Australia follows I don’t see how the US bucks the trend. Tech is leading to the downside, there’s no doubt about that. But we have this other part of the market which stubbornly refuses to drop. China usually isn’t the world leader to the downside as they like to follow Europe’s lead but I’ve been tracking the SSE very closely and am fascinated to see how they haven’t confirmed better moves around the globe.
Back home Friday was a day where the Dow Transports got hit very hard. Here’s the chart as well. They put it what Nison would probably call a blended evening star or bearish engulfing high.
I’m not convinced this is the top for the Transports because the connect the dot trend lines lead to the hypothesis an ending diagonal wedge may be forming but it would require a down/up sequence. But this is the stubborn part of the market I just discussed and if Europe and China finally give it up you know at some point in the not too distant future this group is going to break down. For those of you who are Dow theorists, you have my support and I believe if the Transports break support we are finally going to see a spike in the VIX.
You already know what tech looks like, that’s the true downside leader right now and we are going to look at it anyway. But the reason this market is being held up is due to sectors like the Transports. The developing circumstances suggest all of it could be on borrowed time.