State of The State: Slow Volume, Lock in Profit

08/16/2017 3:05 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

The next two weeks are some of the lowest volume days of the year. Be sure to lock in a good share of profits that are not yet booked, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.


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It’s time to take inventory of the environment as some very long-time cycles are starting to mature.

First of all, the top of the 1966 bull market was Feb. 9, 1966. Do you realize we now stand at 618.2 months down the road? Fibonacci and Elliott enthusiasts know very well the significance of the golden spiral numbers. On August 25, it will be the 30th (360 months) anniversary of the top of the 1987 crash market. Gann enthusiasts know the importance of what a 360-degree circle means to financial markets.

Rarely have we seen important historical market tops cluster in the same month. Does it guarantee a major reaction? No, but it would be very foolish to ignore it given how complacent the CBOE Volatility Index (VIX) has been for so many months.

September is also known to be a graveyard to stocks. For all the would-be bears who have come out and made their warnings, all of them miss one key point. Predicting crashes is a very low probability at any time. If you look at the number of waterfall events in the past 100 years, the odds are tiny a reaction could materialize at any given point in time. Nevertheless, some of the more important ones materialize in the period after Labor Day.

The last time I saw anything like this was in 2007. I saw months ahead of time that October would be 261 weeks up from the 2002 bottom and several weeks earlier was 161 weeks up from the 2004 correction low. It gave us a window of about 6 weeks and the market ending up topping on the back end of that cycle. I’ve looked back and realized I got lucky because I did put myself on a limb. This time I’m not making any predictions. All I’ll say is risk is extremely high and if something is going to happen, September-October is the time for it.

Right now, we are sitting with vibrational square out highs in the SPX, Dow and the NASDAQ where the Brexit low is 4574 and the current high resides at 273 trading days off that pivot. The BTK and Dow Jones Transport Index are well off highs with the DJTA successfully defending the 200-day moving average for the second time this year. In the period leading up to 2007, the DJTA defending its 200 twice before it eventually broke. In the smaller corrections of 2011 and 2016 it did not hold at all. How many times can this sequence go to the well? Chances are the next test, should it come, will break.

chart

Psychologically, the country is deeply divided and the market drops with the expansion of every new fissure. We saw this a couple of weeks ago when Robert Mueller impaneled a grand jury.

Geopolitically, markets were hit on the prospects of a war with North Korea. Now that tensions have eased, markets have lifted. That gets us to the same enchilada we’ve been dealing with all year long.

Congress is on vacation again. One of the business channels reported they’ve been on vacation 69 days this year. They won’t be back for another few weeks, but when they do, they’ll have to deal with their failure to fix health care, hoped for tax reform and 800-pound gorilla in the room, the debt ceiling.

They’ll have roughly twelve days to raise the ceiling from the day they get back. This isn’t the place to discuss Charlottesville but what I can tell you is the national consumers watching these events even thousands of miles away tend to shut their wallets during times of serious social unrest. It is not the kind of thing that shows up on the chart immediately. It shows up in earnings reports as well as the government data we see every month.

Luckily, the next two weeks are some of the lowest volume days of the year. It gives everyone a chance to take a deep breath, watch the beautiful backdrop when the Fed gets to Jackson Hole later in the month and be sure to lock in a good share of profits that are not yet booked.

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