Is a Santa rally a given? It could go straight up from now to January 1 but odds are against it. says Jeff Greenblatt, editor of The Fibonacci Forecaster on Wednesday.

Through this whole cycle season, I’ve said the one thing we’ve been missing is euphoria. Complacency? There’s plenty of it. Just look at the CBOE Volatility Index (VIX), we have historic complacency. The worst attack since 9/11? Markets rallied the next day. Tuesday another attack almost down the street from the New York Stock Exchange, markets gap up again.

Markets have to take it personally before they react. Airline stocks got hit but it took earnings reports to show the September hurricanes were finally impacting the bottom line.

Do the markets really require a serious black swan event to pop the bubble? I hope not. But I do have to pull the Lord Rothschild card to remind you the environment remains like 1937 where the Dow ran into a geopolitical buzz saw before it rolled over.

Last week the tech sector caught up and took the lead as Amazon (AMZN) earnings took the price action through the roof. While that was happening, the Dow/SPX remained flat.


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Until today. There’s lots of complacency out there but today, out of the blue markets gapped up on the open. I finally saw euphoria. Stuart Varney on Fox Business was filled with glee. Nothing against Varney, he’s my favorite market voice in the morning but I am always on the lookout for extreme behavior. Throughout this entire period, I’ve seen confidence but the contrary indicator laughing gas hasn’t appeared in a very long time. Within an hour the Dow went from up 140 to only up 40 and at its lowest point only up 11. We had a Fed meeting where they recovered because there was no rate hike.

But to confirm the laughing gas hypothesis, as I’m writing this one well-known business website has a screaming headline which states, “Stock market poised for a ‘melt-up’ as it begins strongest months of the year.” I’ve seen this script many times. Yes, the seasonality suggests that once we get out of September-October without a correction, odds shift it won’t happen until January. On the other hand, once the crowd believes it is smooth sailing through an entire season, the exact opposite tends to happen.

In May 2011, a well-known reporter on one of the business channels told viewers he went to a charity event in Manhattan with leaders of the hedge fund community. They were talking about something called the see-through trade. That was strange even for television.  No, it wasn’t the see-food diet, but it might have been. The see-through trade was a psychology where they didn’t expect anything bad to happen over the summer months and they were all seeing through to the 4th quarter where the might get some turbulence in October.

That prediction didn’t age very well as 2011 was the year of the last euro crisis, the MF Global disaster and fears the U.S. would default on its debt. Markets got crushed throughout the summer and only bottomed in October. None of us know what exactly is materializing around the corner.

While it’s true we are now on the back end of all these cycles, we are not totally out of the woods yet.

When we look at the seasonal aspect of markets, we should say a Santa rally is a given, it will happen. That gives us two full months for the rest of the year. Given everything that has happened, does anyone think we won’t deal with turbulence in November? It could go straight up from now to January 1 but odds are against it.
I still have some readings that lowers risk from last week but not to take it out of the red zone. The Dow Jones Industrials (DJI) are up now up 263% from its 2009 bottom at 6469 to the high of 23517. The Trump rally is 90 weeks.

chart

There’s a possibility all these cycle points have been an inversion, but I wouldn’t bet on it. Markets don’t usually rally from the point of euphoria.

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