Markets All Over the Map. Watch Oil.

06/21/2017 2:57 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

At this stage of the game my crystal ball only goes out a few days at a time. If you are long, lock in profits but if you are on the sidelines this is not the place to get started, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.

When the SPX finishes down 1.42, it’s important to look under the hood.

What about those heavyweight tech stocks? We know Wall Street cheered the Amazon (AMZN) purchase of Whole Foods. While they cheered Amazon gapped up but left a massive bear belt formation by Monday (June 19). Right now, they are in the middle of the range since the Goldman report. Apple (AAPL) remains flat at the low end of the range. Alphabet (GOOGL) and Microsoft (MSFT) are mid-range while Facebook (FB) is back near the high. As a group, they get a solid B.

At the head of the class suddenly is the NYSE Arca Biotechnology Index (BTK). Oil stocks get an F with the NYSE Arca Oil Index (XOI) breaking a longer term weekly Andrews channel. As far as oil is concerned, it last made a very important high on June 9, 2016 which is a full Fibonacci 377 calendar days to here. Wednesday was also the seasonal change point. Financial markets usually turn close to the change of season.  On Tuesday, it was determined oil was in a bear market because it was down 20% from the year’s highest close. It’s a meaningless statistic other than realizing the crowd is waking up to the fact there is trouble. As a contrary indicator, it could represent a low if it decides to respond to these cycle points and channel lines.

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For Dow theorists, the Transports had a rough start to the week while the KBW Bank Index (BKX) also looks like it could go lower. The Russell 2000 is mid-range but also questionable.

Armed with a report card, what does it all mean? Overall, markets are experiencing slow deterioration but when push comes to shove they fail to jump off the ledge. It can be described as rotational and divergent. If fear drops like a rock, hope dies slowly. Topping can be a very slow, drawn out affair. We’ve all experienced what a good market looks like, we’ve observed it over the past few years. An all-in healthy bull market is where most sectors are up and small caps are leading to the upside. We no longer have that. It is likely a transition to something else. What is that something else?

Geopolitical risk remains very high. Since our last update, the US shot down a Syrian plane and the Russians have warned about retaliation. Military experts are saying this is the greatest risk to US-Russian relations since the Cuban missile crisis.

When it comes to other red flags, all you need to do is throw a dart and likely come up with something the market could get concerned about on any given day. Remember, the market wants tax reform which is baked in the cake. Any of these issues will be viewed as a threat. But there is nothing concrete yet. Lawmakers are still promising a vote in September.

We’ve discussed bigger cycle points in this space which do not materialize until September. It is entirely possible we can go through the summer under these conditions. Then again, on any given day a report like the one Goldman released nearly two weeks ago can sink a segment of the market. For instance, while markets cheered the Amazon purchase of Whole Foods, the day before grocery stocks were hit hard when Kroger (KR) had a bad earnings report. Amazon didn’t help matters as KR dropped a whopping 33% in just two sessions. Since the CBOE Volatility Index (VIX) closed at 10.40, risk should speak for itself. Finally, the next near-term cycle point hits next Tuesday at 160 days for the Trump rally. At this stage of the game my crystal ball only goes out a few days at a time. If you are long, lock in profits but if you are on the sidelines this is not the place to get started.

Historically speaking, the market is behaving like one that is long in the tooth. But they will not drop for real unless it is triggered by an important time window or square out vibration.

When the cycles mature, the news event seems to materialize. Right now, there are only smaller cycle points. The takeaway is oil which is at an important point, is it an advance indicator of a weaker economy? The next couple of days will be very important.

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