It was a decent week for the stock market. Why? It could be because President Donald Trump was out of the country and the dialogue shifted away from scandal to geopolitics. The stock market didn’t have a chance to get upset as everyone took a breather from the growth agenda being interrupted. But he’s back and the domestic problems have not gone away. Who knows what they’ll come up with next.
The market got upset due to scandal a couple of weeks back but then recovered. But nothing has changed. Tech is at new highs; the Dow is not. The best thing I can tell you is Transports has healed by retaking the breakdown. But the BTK has not. Tech has recovered largely because of the SOX as well as good performance out of heavily weighted names like AMZN, GOOGL, MSFT and a case can be built for Facebook which is not at new highs. Areas of concern to watch this week obviously are biotech, GS which has just managed to fill the gap on the way down and the Russell 2000 which is a serious laggard.
In a healthy market, the small caps should be leading to the upside. Here they are either lagging badly or even leading to the downside. But what the chart is telling us is they are attempting to hold the bottom of the range with converging channel lines. The worst-case scenario it fails soon and the market is going to follow. The best-case scenario appears to be developing wedge which would top later in the year. We know the September/October season is going to be the 360th month of the 1987 crash event but also close to 618 months off the 1966 top. I’m not here to make predictions because you can make money or be a hero and chances are you won’t do both. All I’m trying to do is call out the highest probability point in the year for a reaction.
Here we have a situation where one sector gets well potentially at the expense of another. Transports is doing better while the BTK gets hit. Is that a sign there is less money chasing after these stocks? Is it a sign of a rotation and narrowing advance? Is all the money going into heavily weighted tech and a few others at the expense of small caps? If that is the case, the condition we have is very likely late stage bull. In Europe, the CAC peaked three weeks ago. Something other than Macron and the globalists appears to be materializing. Maybe the market figured out Macron isn’t so good after all.
We are looking at two main conditions this week. Any number of areas are testing the gap of the breakdown on May 17. The other thing we are looking at is the 144-day window off the low on Nov. 4, just before the election. Many don’t realize the true bottom to many areas of the Trump rally came just before the election, not the day after. We are finally at day 144 on Thursday. The actual window starts Wednesday, which means you need to be on your toes as you are reading this. Also, it’s a new month and June has a seasonal change point so the Fed meeting this month carries greater importance.
Let’s change gears to the oil market. The just completed Memorial Day weekend is considered the peak of the driving season as far the oil market is concerned. That is considered the bullish high seasonal point for oil. It’s been a strange year because oil has been up when it didn’t have the seasonal wind at its back and down when it could’ve been up. Last week the OPEC ministers upset traders by saying they will maintain the same level of production cuts into 2018. It dropped and recovered to a degree. On this chart, I called out the fact oil turned up at 354 hours off its May 4 low while at the same time it turned up at 54-30min bars off this recent high. The challenge is going to come at that attempt to go higher which was met by all sellers. That’s what I call the explosion point and the place on the chart where bulls were traumatized. You can see them backing off in the overnight action with a high at 50.28 and 27 hours.
If oil fails at the explosion point it can go a lot lower because everyone would figure out there is some point of recognition there are no buyers at that level.
Some of you know from time to time I offer up some key Socionomic points of view. Socionomics is the study of mass crowd psychology as it oscillates from extreme optimism to pessimism and back. It transcends politics. In fact, social mood defines the political views of the era. It is one level deeper than politics. For the past two years, I’ve been wondering why Bernie Sanders has such appeal in this country. We all know he carries a socialist point of view but America is not Europe. Last week all of this came to a head for me. Mark Zuckerberg spoke at Harvard and floated the idea about basic universal income. Many people were left scratching their heads on that one. I think you realize what that means. My brain has been working overtime to figure this out. Then it hit me. It all made sense. How many of you saw the “The Wizard of Lies” on HBO? This is the movie where De Niro plays Bernie Madoff.
Think about this for a minute. His company was a market maker via the National Quotation Bureau’s Pink Sheets. The technology his firm helped develop became Nasdaq. He was a former chairman of Nasdaq and instrumental in developing a lot of the regulations in the industry and served as chairman of the Board of Directors for the National Association of Securities Dealers (NASD) per Wikipedia.
This was not an ordinary Ponzi scheme. Wall Street is littered with more than its fair share of criminal types. But here’s the guy who supposedly was beyond reproach. We can make the argument he partially created the house. He was viewed by many as the house. When the house cheats, the violation of the public and mistrust of giant financial institutions runs much deeper than normal. So, when a billionaire like Zuckerberg comes along, a pure capitalist who clearly benefitted from the system and now promotes something quite different, there must be a reason for it. When he goes to the most respected institution of learning in the Republic and is cheered for these ideas we really must examine it.
Then it all hit me. Madoff’s crimes are so monstrous, so brutal, hit such a deep nerve they appear to have helped cause a historical tectonic shift in the economic plates of the country. After 2008, I always figured society would dust itself off and eventually recover, just like it did after the Great Depression. But it hasn’t. If I were a millennial looking at the greed and crimes of the prior decade I may very well embrace Bernie Sanders as well. While I don’t agree with any of it, I think it makes perfect sense.