The major stock indexes are facing several key time windows this summer that could signal major turning points.
We are upon another important time window season, which will last from now to just after Labor Day. There are a few high probability points including this week, the middle of August and then the beginning of September. In its size and scope, it similar to 2007. We know the Russell 2000 peaked in the middle of July, the Dow/SPX around Oct. 12 and finally the Nasdaq 100 hit at the end of October.
It may or may not play out that way again. My job isn't to make predictions but to tell you about the reactionary points. Here's what happens. A time window that doesn't cause a reversal strengthens the prevailing trend. It can also slow down the momentum of the prevailing trend.
Think of aerodynamic drag where the flaps help lower speed at a faster rate when a plane wants to land in a shorter distance. What does this mean? Time windows can slow down the momentum of a bull pattern to the point it finally terminates. That's why many major moves reverse at the very last moment, at such time most of us give up on the idea it will happen. It's not necessary to bother with all this technical jargon to understand what is going on. But know this, many important moves only materialize at such time when it feels like its going up or down and will never change direction. Volume technicians correctly tell us its when everyone has bought or sold and nobody else left. Mark Haines made his legendary call on the air in 2009 only at such time as it felt like it was going down and never coming back.
We could be up against such a scenario this year. What I can tell you is this week we are 144 days off the 2018 bottom and 987 days off the Dow low in 2015 (see chart below). As you read this, we are in the back end of this window.
This week the news got more interesting. On the one hand America is sending negotiators back to China for another kick at the can. On Tuesday's close the Department of Justice announced an antitrust review of big tech. The result was mixed as the Dow, SPX and NASDAQ diverged. While Facebook (FB) is facing a $5 billion fine, whether the political will exists to actually break up or regulate these companies is very uncertain. The company is still hanging on after a good earnings report. When we look to the FAANG stocks: Facebook, Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Google (GOOG), it is clear we have a problem. Last Thursday Netflix had a bad earnings report, they were light on revenue and subscribers. Since they were priced to perfection, the stock was taken to the woodshed. This one can bounce but chances are its not coming back. We've already seen Google have a major gap down and currently trading 12% off it's high. That makes two out of the five market leader FAANG stocks from the current bull market. If this trend continues, the market is on a path to eventually lose even more of its leadership. Without big tech leadership, how exactly is this rally going to sustain another leg up?
Gold & Silver
Let's turn to precious metals. It has broken through but stalled again on yet another interesting calculation. Gold and silver have been consolidating since the latter part of last week. The U.S. dollar has been the beneficiary but stalled on Wednesday. What you see is a very nice square out with a recent move down of .875 with a stall at 88-180 bars (see chart below). There's a reasonable chance this stall can lead to a bigger consolidation. If that materializes, we should see precious metals get back into bull mode.
What is the takeaway to all this? The real message for time windows is risk becomes elevated. If we don't get the reaction now, the middle of August will be 618 weeks from the early October 2007 top and since the Nasdaq topped three weeks later, that means our time window season completes in the early part of September.
Another reason to be concerned about the cycle points is markets have completed their bullish phase of the four-year presidential cycle. It's time for investors to be vigilant. If you have profits from the past few years or even since the beginning of this year, keep a trailing stop and do not give back hard earned gains. If you are a trader, be careful about starting new long positions here. There are no sell signals yet. We didn't even talk about the Fed or interest rates today. We'll have plenty of time to work with that in a week from now when the Fed meets.
Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. Sign up for his newsletter here
