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Relief Bounce Today. Sessions Out. Santa Rally Ahead? A Sell Sequence?

11/07/2018 4:29 pm EST

Focus: STOCKS

Jeff Greenblatt

Director, Lucas Wave International, LLC

Breaking news just as I’m putting this update together. AG Jeff Sessions has resigned. That means there will be more domestic disturbances. It could even give us a sequence of selling prior to Thanksgiving, writes Jeff Greenblatt Wednesday.

Keep your seatbelts fastened, we could be in for a rough ride. At least the uncertainty of the election is behind us, an event all traders can be glad is over.

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It has been said by people much smarter than me, the market doesn’t like uncertainty. It’s fair to say at this point most people recognized the importance of the election. There is a very deep reason for that and it goes way beyond partisan politics.

Other people much smarter also realize there is a cycle event which happens approximately every 80 years. Let’s just call it a generational turning. The last major turn was the Great Depression through WWII. Prior to that was the U.S. Civil War and before that was the Revolutionary War period from 1776-89.

It explains a lot of the upheaval in the world. Is it also fair to say I can engage you in this long-term cycle and sidestep the usual partisan politics?

We are right in the middle of this generational turn which started to manifest with the Financial Crisis in 2008. In this column I’ve quoted Lord Rothschild as saying this market most closely resembles the late 1930s. Do you think Mr. Rothschild might know a thing or two about this generational turning?

There were several possible outcomes that were not likely to be favorable to the market. If either side of the divide had a total victory, it would’ve meant the other side would be mighty upset. It could’ve created the kind of environment where stocks could have tanked right here.

We know the market is tied at the hip with Trump economics. Had one side taken total control, impeachment was a real possibility. The market wouldn’t have been happy. Had the other side kept total control, there were threats of domestic disturbance. I shouldn’t be telling you anything you haven’t already seen or read about.

But none of that happened. It was a split decision, typical Washington gridlock. Neither side is totally satisfied but on the other hand not too unhappy about these results.

Consequently, the market stages a nice relief bounce on Wednesday and now looks like there could be some upper testing of the October breakdown.

For the first time in a long time, can we all go back to the simple business of merely being traders and hopefully put some of these geopolitical and domestic issues aside for a while? It’s hopeful but that is probably wishful thinking.

Before you get too excited, let’s be clear about one thing. The generational turning issue has not been solved but the can has likely been kicked down the road to the 2020 election.

What that means is for now we can get back to x’s and o’s. This is November, the market is in rally mode. We are coming to the seasonally bullish time of year for the Santa rally starting near Thanksgiving. If there is to be any selling, the highest probability is we get another sequence in the next couple of weeks. In years where there are bear phases, the period leading to Christmas has been choppy. So, this year could line up that way.

Just a simple chart today. The Dow (DJI) broke above the polarity line which was the last leg to the high. That’s the line where those who bought got trapped. Polarity worked one time on the way down but this time it broke through.

chart

If there was to be downward pressure, this line was the place for it. Now the door has been opened for entire upper testing of the drop from last month.

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