Another week, another terror attack. After rising on Thursday, the VIX dropped back again on Friday. Last week I told you the market behaves like a little kid who won’t take all of the news to heart until it becomes personal. The key point here is for everyone to realize what eventually happens when society comes under attack--the stock market comes unglued. Want more proof? Let’s go back 100 years.
Another week, more mayhem in the world. What else is new? Last time I showed you the chart of the late 60s. The more I look at this situation, the more I think these times are more treacherous than 50 years ago.
Last week I showed you the incredible square out on the DAX for the Brexit high. Late Monday many charts formed a new square out low, which propelled markets back up. Probably the best example I have for you is the S&P 500, which turned back up at the 1991 handle in 91 hours for the move.
While the UK and the rest of the world was trying to figure out who really won the vote on Thursday night, I can tell you beyond a shadow of a doubt the real winner was WD Gann. Oh yeah, I wouldn’t kid you about something like this.
Wednesday became a day that sold on the announcement but settled in flat as I think traders weren’t so concerned as to what the Fed might do as much as they were looking for some bravado after the recent comments they’d raise rates soon.
Two gigantic weeks are coming up. Up to bat first is Washington and Fed Chair Janet Yellen. The Fed knows it’s an absolute absurdity to raise rates in an economy that just created 38,000 jobs. But do you want to tell me they have their collective heads in the sand about an economy barely staying above water at 0.8% GDP?
A week ago it appeared markets would stare down the abyss and not jump. They didn’t as there were several redeeming qualities. The best was sequence I showed you in the S&P 500 where a weaker market never would’ve dented a sequence like that. As a review here’s what I showed you last week.
I’m not concerned about a seasonal tendency like a Santa rally. I’m concerned for the aftermath. In normal years there is a holiday euphoria that went missing for the most part this year. While the week directly after Christmas is usually bullish it can be diminished as the euphoria has passed but as I said there wasn’t much euphoria to speak of this year.
Last week was one of the more interesting and bizarre weeks I’ve seen in a long time. There were two highlights. First was the ISM number, which came in at 48.6 for manufacturing. Anything below 50 means contraction. Economists were expecting 50.5. The very next day Fed Chair Janet Yellen said it was a very different cycle. No kidding? This is the nightmare scenario I’ve been concerned about for at least a year.