A Tale of Two Markets

05/10/2017 2:48 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

Jeff Greenblatt explains the French election aftermath, two diverging markets in the US and turbulence in the Australian Securities Exchange in his weekly commentary. He’s the director of Lucas Wave International and editor of The Fibonacci Forecaster.

Now that the French election is behind us, you may be wondering where they sold the news. As you know after round one a little over two weeks ago, world markets bought the news of Macron nosing out Marine Le Pen to win. They’ve rallied ever since, and the potential for buying the rumor and selling the news was very real.

On Sunday night (May 7), the YM gapped up on the news but came right down and has been lower ever since. But technology has remained up and whatever selling materialized has been marginal.

chart 1

It’s true the French CAC sold on Monday and has not recovered yet. But of all the areas, the most important reversal we’ve seen is in the EUR-USD where there has been a 264-day reversal off the high.

Friday’s peak was 263 days off the 2016 peak, so that means Monday’s reversal misses a perfect 262 golden spiral by a margin of two. It now has a good chance to fill that gap which materialized after the first round of the election.

For US markets, it’s a tale of two markets again. Another divergence is working given tech is setting new highs and the Dow has drifted lower this week.

Nowhere is this more apparent than a comparison of the PHLX Semiconductor Index (SOX) which once again hit a new high and the Transports which looks like it could break down. Gann himself would’ve loved this chart.

chart 2

The high on March 1 is 9639. The current square out secondary high is at 38 days and has drifted lower ever since. The low on May 1 is 9062 and Wednesday was in the 9050s handle. That means we had a great square out vibration at 38/39, a thrust lower with a secondary high below the 38-day square out. Now that low is taken out and for a bonus the Andrews channel is pointing down. There is no real technical damage yet but there could be because it is now setup that way. Since the Transports had a good red candle on Monday a case can be made those participants sold the election as well.

I must mention a condition far from home in the Australian market. I realize many don’t follow it. On Monday, Treasurer Scott Morrison announced they would hit the banks with a new tax on balance sheet liabilities. The Financial sector in Australia got destroyed. Leading bank Commonwealth Bank of Australia CBA had an okay earnings report but was taken the woodshed because of worries concerning this new tax.

For those who don’t know, the Australian Securities Exchange (ASX) will only go where the banks will take them. Banks have had a tough enough time lending money to the public, how is this going to help? Right now this is an issue that seems far away but if the ASX catches cold it could spread across Asia and perhaps beyond.

Finally, another byproduct of the French election is a CBOE Volatility Index (VIX) sitting at another important low for this year solidly in the 9 handle. Some people don’t think it’s important but that is part of the complacency problem. Extreme euphoric sentiment is not a sell signal but a long-term problem.

The last time the VIX visited this geography was December 2006. The stock market didn’t start topping for another seven months. I heard one pundit say because the French election was out of the way, there were no more roadblocks standing in the way to the market going much higher.

When I hear sentiment like that, I get very nervous and so should you.

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