Cycles Enter Red Zone but Markets in Reprieve for Now

08/30/2017 3:00 am EST

Focus: STOCKS

Jeff Greenblatt

Director, Lucas Wave International, LLC

If you are nimble, this is a time to move in and out of long positions. Longer term players should have a point where profits are locked in, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.


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Last Friday, August 25 was the 30th anniversary (360 months) since the top of the 1987 market. In the very least, the news events which manifested were the terrible Hurricane Harvey which hit our friends in Texas as well as the North Korean missile test that went over Japanese airspace.

I am very concerned these mega events would fall on the calendar right now. Late Monday, the Dow futures dropped over 100 points on the North Korean news. But by Tuesday, markets recovered after Gen. Mattis said, “No, we are never out of diplomatic solutions.” While he made these statements public on Wednesday apparently somebody had to know about it on Tuesday given the market’s ability to recover.

This is the last week of August, traditionally the lowest volume week of the year other than Christmas. So, the Pentagon may have given the markets a little bit of Christmas in August. Whatever the case, technically several important charts were on the cusp of tanking but apparently this is not the week to do it. The Dow Transports (DJT) had already breached the 200-day moving average but held the 50-week right on the button. For now, the KBW NASDAQ Bank Index (BKX) is holding its own 200-day moving average. But the slope of the 50 has changed and it looks like it is rolling over.

chart

But we are hardly out of the woods. Last week we discussed Lord Rothschild and his views about politics colliding with markets in a way none of us have seen in our times.

There are many issues to be concerned about but let’s be clear about one thing. No matter happens with North Korea, the fact a missile would fly over sovereign airspace of a foreign country is an act of aggression. Had the Soviets tested a missile off the coast of Florida during the Cuban missile crisis there would have been war. Those of you who really understand the chess game should realize this is a Chinese reaction to sanctions which involved a few Chinese banks a few weeks ago. It also is their reaction to Trump’s plan for tariffs on Chinese goods.

The next big risk which we’ve been following all year is tax reform. Congress doesn’t get back to work for another week. The whisper has been they’ll get tax reform done during “this session” which may mean it doesn’t get done until 2018 when they run for reelection. The market will not like that one bit.

Regardless of which way the news rolls, my views have not changed. We’ve entered what I call a technical red zone and it will last until the end of October.

Is this the Gann 360-month anniversary of the 1987 top? In October, it will still be the same anniversary of the actual event or the bottom. That’s how cycles work and this is the biggest one I’ve seen. I’d like to tell you these cycles will invert and markets will take off as opposed to correcting. That is possible but at this stage of the game the lower probability.

Tuesday I saw a couple of charts that are very alarming. Zero Hedge reported only 20% of Americans surveyed believe the stock market will be lower in the next 12 months. This is the most extreme number since 2007. They also reported CFTC Dow futures speculators have never been more net long. This is not the type of environment to root for a sustained rally.

For right now, if you are nimble this is a time to move in and out of long positions. Longer term players should have a point where profits are locked in. Those who are looking to go short, it all depends on what you are looking at. After all, some of these sectors are close to major breakdowns. Have patience and pick your spots carefully.

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