If Heavyweights Fall, Kiss the Market Goodbye

06/15/2017 2:55 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

Today, traders were a bit confused by the rate hike. The Emini was initially up, down and finally back up again. The dust still needs to clear, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.

It’s been common knowledge in recent months the market has been held up by heavily weighted tech stocks. Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN) and Facebook (FB) has kept the freight train rolling while different sectors have alternatively taken breathers.

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Then a strange thing happened. If you had an early dentist appointment Friday morning (June 9), you came back to see the NASDAQ down 100 and the Dow up 50. You may have thought the Novocain didn’t wear off. The market stood aside and watched while the big-league tech names dove off a cliff. Goldman Sachs issued a report that basically said these stocks were acting as a safe haven, the equivalent of bonds or utilities stocks.  Clearly traders are concerned about a bubble being exposed so the market dropped. The PHLX Semiconductor Sector (SOX) came along for the ride but by Wednesday the NYSE Arca Biotechnology Index (BTK) which represents biotechnology was already at a new high. The Dow hit a new high this week as well.

As it turned out, we were watching the 144-day window in these heavily weighted tech names that was scheduled to hit on Monday. Amazon, Google, Facebook and Microsoft each hit pivot lows on November 14 while another major portion of the market hit their low on November 4 just before the election. This Goldman event hit a day early.
Now that we have lows in the 144-window accompanied by new highs at least in the BTK and Dow we could say this cycle produced an inversion which means a low instead of a high. Our chart of the week shows part of the technical reason for the drop. AAPL went over the cliff at 161-5 min bars off the high. That was the acceleration point. From the near-term low, the NQ Mobile ADR (NQ) also hit 160 hours up to the rollover point on Friday.

As far as the Fed is concerned, the Goldman report put them between a rock and a hard place. They committed themselves to raising rates right now. The recent jobs number was not supportive of a rate hike while easing out of a bubble situation would be. Traders might have been uneasy whichever way they went. If they failed to raise rates, the crowd probably would’ve viewed it as storm clouds coming into the economy. Raising rates was the expectation of business as usual even as we are in an environment which is anything but usual.

Finally, your rebuttal may be based on recent action the heavyweights are no longer holding the market up, given biotech and the Dow are up. And you are right. Here’s the problem. These stocks have lulled the crowd into a false sense of complacency. The whole market is powered by the confidence, even if it can be called false confidence, these popular big names are up. After all, Goldman did compare them to the bond market. Do you realize what the implications are? Many consider these stocks are so safe and stable returns should be good for the foreseeable future.

Let’s be clear about one thing. Tom Hanks famously told us there is no such thing as crying in baseball. There is no such thing as happiness in the stock market. If you are happy, it’s time to cash in the chips.

Today, traders were a bit confused by the rate hike. The Emini was initially up, down and finally back up again. The dust still needs to clear. When it does, we’ll find a market that is all over the map. There are some good vibrational calculations for a low however the most important situation still rests with the heavyweight names. We’ll be watching to see how they respond. If they can’t get back on the horse, the market won’t be so lucky next time.

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