Market Finally at Inflection Point Amid Tax Plan Questions

10/25/2017 4:35 pm EST

Focus: STOCKS

Jeff Greenblatt

Director, Lucas Wave International, LLC

I’ve been doing cycle work for 19 years and this one is like big wave surfing. There are more possibilities here than I’ve ever seen. I can tell you one thing they all have in common, says Jeff Greenblatt, editor of The Fibonacci Forecaster.

We’ve been following cycles for two months. We are finally coming to the end of it as we’ve passed the 30th anniversary of the 1987 crash. There are many points, the latest of which was 618 calendar days from the February 2016 bottom which came within a day or so of the October 19 anniversary. But I came up with another one, 618 trading days from the May 2015 peak which comes at the end of the week.

It looked like bears would finally get it done on Monday but on Tuesday the Dow Jones Industrials (DJI) exploded for another 200 points. Much of that was due to big days on earnings by 3M (MMM) and Caterpillar (CAT).

While the Dow was going through the roof the NASDAQ and S&P 500 (SPX) was doing nothing. I finally came to the point where I had to consider this might not happen at all. I’ve been doing cycle work for 19 years and this one is like big wave surfing. There are more possibilities here than I’ve ever seen but I can tell you one thing they all have in common.

In time windows that have more than one point, markets always seem to wait until the bitter end, until such time everyone gives up on the possibility it’s going to happen. It waits until such time it makes everyone who thinks it can turn feels mighty foolish. If it wasn’t for tech action yesterday, I was nearly there.


Advertisement


But then came today and in the very least the tech indices, SPX and Russell 2000 Index (RUT) moved further away from their highs which have materialized in our big-time windows. One thing I like about this drop is not many people are expecting it. And if you don’t understand the historic time cycles going on here, the drift lower is sneaking up on people. The more it sneaks, the further it can go because by the time people figure it out, it could down quite a few percentage points.

As you know by now, I’m not here to make predictions but follow the probabilities.

Odds are very good for a reaction in this season, so I don’t want to get ahead of myself and say we have a top.

Here’s my inflection point. At today’s low the YM is down 233 points (Fibonacci) at the start of the 90th bar on a 15-minute chart. This is a good price and time combination. In a good market, it should create a low. But let’s just say that in every important turn, support will always break in some way, whether by a calculation or an actual line in the sand. Odds will go way up for the Dow if this low gets taken out.

Tax cut doubt: One of the reasons people are enthusiastic about market possibilities is the fact the crowd now believes the tax cut will happen. Even I started to buy in. I’m not going to pour cold water on it but there is concern about how it might not happen. As you know there are 52 GOP senators which means there can only be two defectors without any help from Democrats with VP Mike Pence breaking any tie.

If you’ve been following this very closely, you know the president has been feuding with John McCain. Who thinks McCain’s vote is a given? Lately, Trump’s also been feuding with Senator Bob Corker who recently announced he will not seek re-election. Tuesday, Arizona Senator Jeff Flake announced he will not seek re-election next year because he is getting crushed in the polls by newcomer Dr. Kelli Ward. If you saw him speak on the Senate floor it certainly sounded like someone throwing down the gauntlet at Trump.

chart

Who thinks Corker and Flake are a given? That makes three and if it falls that way at least one Democrat will have to break ranks. Who thinks that will happen?

Do you see the problem? The market has baked tax reform into the cake from the day Trump won the election. That we could still be sitting here a year later with this up in the air is beyond the pale. Do you think the market is starting to meditate on the tea leaves?

Subscribe to Lucas Wave International newsletter here

Related Articles on STOCKS

Keyword Image
11 Reasons to Buy Microsoft
7 hours ago

For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...

Keyword Image
A Trio of Top-Tier Biotechs
7 hours ago

We hold three biotech stocks in our growth portfolio — Biogen (BIIB), Bioverativ (BIVV), and R...

Keyword Image
Saudis, Oil and ETFs
7 hours ago

Under the guise of clamping down on “widespread corruption,” Prince Mohammed bin Salman ...