September can be a graveyard for stocks. A reminder that risk is high this time of year. If you have profits accumulated over months or even the past few years, lock them in now while still giving winners a chance to run, writes Jeff Greenblatt Wednesday.
A week ago, I described the process for a Gann square of nine high in the Dow. The rally from the low in early April stopped going up within a point of a perfect 1618dg range which vibrates with the 1.618 golden spiral. It’s a week later and still holding.
The top is still not confirmed and I told you if it starts to drop you’ll know why. Right now, bulls are still pushing back to retest this high. But if at any point going forward the Dow turns down, we could very well be in what the Elliott community calls a third wave.
Why could it happen?
This is September, the highest probability period which can be a graveyard for stocks. Over the years I’ve encountered many people who wanted me to teach them how to spot the next crash in the market.
Mostly this happened in the early part of the decade. Unfortunately for them, the market just turned long-term bullish and I had nothing to offer. But I will say this. If the market is going to get nasty, it usually happens this time of year. For discussion sake, let’s just say the odds of the stock market crashing on any given day is near zero. It’s bad for business to even talk about it.
But for some reason, when this time of year rolls around, the odds go up. I couldn’t tell you exactly what the odds are. But if memory serves me correctly, the ’29 and ’87 crash legs set up in September even as it manifested in October. Of course, we have 2001 and 2008.
I am not predicting the market is going to crash.
I am suggesting that for every issue we’ve been watching, if something is going to happen to the market, we are now in the season for it. There are many issues as you know.
As America came back from the Labor Day holiday we were greeted to a spectacle seldom if ever seen in Washington, DC at the Kavanaugh Supreme Court hearing. The decorum that has defined our political discourse is gone. What does this have to do with the market? The mood was downright nasty and it likely represents the divide in the republic.
We’ve had many discussions about social mood in this space. As a market historian, this era most resembles the late 1930s. I’m channeling Lord Rothschild again who compared this market to the late 1930s due to all the geopolitical and domestic issues. The period was defined by an almost decade-long bull where social mood was angry at the top filled with all kinds of risk.
If we have this kind of discourse now, what will happen if the Dow were to drop a few thousand points? The market has dodged one bullet after another since the 2016 bottom. How many times can we expect to go to the well?
Finally, Wednesday was the day social media executives were called to speak to Congress. Facebook (FB) took the initial hit on the 618th day of this rally since February 2016 which we discussed here. On Tuesday the stock was downgraded as CNBC said the company faced a “toxic brew of slowing sales growth and regulation risk.” The chart of the week shows FB breaking intermediate level support dating back to March 2018.
Why is this important to you? As the heat of regulation gets turned up, the market has lost one of the FAANG stocks that kept the rally going for months on end. Of the other FAANGs, Netflix (NFLX) and Alphabet (GOOGL) are also getting in hot water while Amazon (AMZN) and Apple (AAPL) hang on. Markets usually lose leadership before they drop for real.
The market is not there yet but once again getting close to being in trouble. It’s amazing how every time it has come to the ledge it has refused to jump.
This next season from now to the election will be the greatest challenge yet to the Trump rally. These are not predictions, rather a wake-up call to remind you risk is high this time of year. If you have profits accumulated over months or even the past few years, now is the time to lock them in while still giving winners a chance to run.
There’s an adage in the market. You can be a hero, or you can make money but chances are you won’t do both.
