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Risk Builds with Each Passing Week

08/24/2017 12:00 pm EST


Jeff Greenblatt

Director, Lucas Wave International, LLC

Approaching September, traditionally and statistically the roughest month of the year, be sure to lock in profits from the past couple of years, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.

Last week I gave you a state of the state. We know big cycle points are starting to mature. Technically the situation has not improved much in a week. 

The nation is very divided and last Thursday markets got hit again. Zero Hedge reported GS dropped because there was a rumor Trump’s economic chief Gary Cohn was going to resign in the wake of the president’s economic councils being dissolved. Cohn presided over these CEOs, several of whom suddenly resigned concerning the “both sides” remarks Trump made after Charlottesville. 

I don’t often quote hedge fund operators but some are quite good. Ray Dalio is concerned about “growing internal and external conflict leading to impaired government efficiency and continues to closely watch how conflict is being handled as a guide, and I’m not encouraged.” 

Zero Hedge also quoted Lord Jacob Rothschild who oversees the world’s biggest hedge fund. He said, “Conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation.” And in a stark comparison to the days prior to World War II, he observes that “politics will probably pay a greater role in affecting markets than we have experienced anytime before in our lifetimes but in a manner broadly similar to 1937.”

Why am I talking about this? 

Sorry to be the messenger but I’ve warned whoever might be listening that the crowd does not like social unrest. 

In a consumer-driven economy, we can ill afford the American consumer to shut their collective wallets. 

But the situation improved early in the week as talk of tax cuts were put back on the table. But I don’t think that was it. 

For at least a short time, the pressure on the president lifted. He got high marks for his speech on Monday night concerning the troop surge. Some of his biggest critics like John McCain seemed pleased. I don’t feel comfortable engaging you in a discussion on politics but if I’m on the same page as Lord Rothschild, I feel I’m in good company. 

On Tuesday conditions seemed to improve but once again we have one of those nagging divergences that have exposed markets to real technical damage for the first time. 

On Wednesday, the Dow Transports (DJT) game back early week gains and is once again below the 200-day moving average. As you can see the last important high came at 11 days after a 9111 low. Making matters worse it was repelled right at the 50-day moving average. 

But the PHLX Semiconductor (SOX) was up, biotech had an inside day, the PHLX Housing Sector Index (HGX) was neutral while the KBW Nasdaq Bank Index (BKX) hung on. 

Let’s not kid ourselves, housing and banking do not look good here but banking is holding the 200 which is more than we can say for transportation. Oil looks improved while retail is slightly off the lows. 

Here’s an indication markets are in trouble. Have a look at the electric utilities represented by PG&E (PCG) which is likely one of the largest in the country. The bull is still in stride and likely staying up because of being a safe haven. For right now, the FANG stocks are hanging on and they are the most heavily weighted stocks. 

Facebook (F)

Amazon (AMZN)

Netflix (NFLX)

Google/Alphabet (GOOGL)

Here’s the bottom line. As the calendar turns to September, traditionally and statistically the roughest month of the year, be sure to lock in profits from the past couple of years. 

I got lucky as the last time I spoke about huge cycles, markets turned on the last possible turn date in 2007. This time I’m not making predictions. All I’m willing to say is be very careful because risk is as high right now as it has been in recent memory. 

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