The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Is the Market Playing a New Hand?
04/12/2017 2:49 am EST
Why are we talking about potential corrections and bear phases, asks Jeff Greenblatt. How many realize the Dow and SPX peaked on March 1? He’s the director of Lucas Wave International and editor of The Fibonacci Forecaster.
Recall last Wednesday (April 5) we had the fantastic midday reversal which came within a point of the golden spiral 1.618 relationship in the ES. Since then oil reacted to the geopolitical event in Syria by spiking higher. Gold reacted as well but took traders on a wild roller coaster to hit its highest level since November.
The stock market? Not so much.
Since then heavily weighted NASDAQ names like AAPL, AMZN, GOOGL and FB took a hit, showing they are not invincible. Many other stocks are more progressed off their highs and leaders are generally the last to fall.
What has materialized since then in the SPX is a move to the bottom of the near-term Andrews channel. The pivot low is also technically defended by the Gann vibrational square out at roughly 78 hours low to low after last week’s 2378 high. The NDX is 79 hours low to low after a 5479-high last week. The discrepancy in the hourly count comes from the tail low left in the SPX.
The week has been characterized by choppy action not only in precious metals but in housing as well where last Wednesday it was down, bounced back Thursday which extended to Monday but a roller coaster back near the high on Tuesday and yet another drop on Wednesday. From time to time we go through a season like this and it may stay with us for a couple of weeks.
There are two main themes emerging this week.
First of all, beware of potential whipsaws and it’s important for traders to pull the trigger on the best setups. If you generally use one criteria for your signal, it is now prudent to use two.
Second, the markets are now testing this low end of the range. The SPX chart shows the near-term channel lines which is support right now. But this line also is the larger degree midline on a much larger Andrews channel for the rally dating back to the Brexit bottom. A break here could lead to an SPX drop to 2300 which represents the channel line since last June. We shouldn’t get ahead of ourselves, but if 2300 is breached going forward it could bring on a bear phase.
Why are we talking about potential corrections and bear phases? How many realize the Dow and SPX peaked on March 1? In a euphoric freight train market such as this, many have a short memory and the NASDAQ/NDX peaked only a week ago. Whatever is happening to the Dow is already 42 days in development.
In bear phases support is broken easily yet in recent years every time the bull has come to a technical ledge it refused to jump. Last Friday, the jobs report was poor. The headline number was 98,000, which wasn’t even six figures. The takeaway is even as the Dow is well off the high in terms of time, if we were in a true bear phase, traders would’ve reacted differently. The likely outcome is they would’ve taken stocks behind the woodshed. The Dow could’ve been down 2-3% but it wasn’t.
Does that mean we are out of the woods? Not yet. In every developing correction, there always comes a point in time where key support is broken. Right now, we are only in that test phase.
What about that 78-hour vibration, shouldn’t it hold? Markets are non-linear and every time we get a condition like this, it’s a bit of new information. Markets are always giving us new information whether we know it or not. If a piece of new information like a good square out does not hold, the market is giving us a “tell” and starting to play its hand.
The market gives clues if we only know what to look for.
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...