A Very Strange Week for Traders

12/06/2017 3:51 am EST

Focus: STOCKS

Jeff Greenblatt

Director, Lucas Wave International, LLC

The next logical point for a market peak is early January, but in some years where that happens part of the market can top by mid-December. We don’t recognize it until we see it in the rear-view mirror, says Jeff Greenblatt, editor of The Fibonacci Forecaster.

Last Friday two major themes of the 2017 market collided. First, the crowd watched with great interest the tax debate in the Senate. Longtime market watchers and traders know it had the potential to be a buy the rumor, sell the news-type of event. The one condition that has been missing from this rally has been euphoria, despite the historically low CBOE Volatility Index (VIX).

On Friday morning, FOX Business host Stuart Varney finally got there. Varney, a very good man and a champion of the middle-class tax cut, was filled with glee as it appeared the Senate had the votes to get it done.

Glee is not a crime, it’s a condition like euphoria which is very hard to sustain. That’s why folks like me watch the business channels very closely for this kind of behavior.

Shortly thereafter the Dow Jones Industrials (DJI) tanked 350 points on an ABC report Trump directed General Flynn to contact the Russians prior to the election. There was only one problem. It was not true. The crowd figured it out and markets recovered. However, the Russian collusion story refuses to go away.

On Saturday morning the Senate passed tax reform by a narrow margin. Readers of this space know I was very concerned about McCain, Flake and Corker. The first two managed to put their feuds with the president aside while Corker could not.

Instead of David Stockman, Meat Loaf turned out to be the prophet when he said, “Two Out of Three Ain’t Bad.”  Am I dating myself? That song came out in 1977.

Let’s just say the market never had its chance to complete buy the rumor and sell the news. They’ve saved that pleasure for Monday which started up big but finished not so much.

Now we have a very questionable chart. For our work, my old school calculation on Thursday night had the S&P 500 Index (SPX) at .62 points per day for the entire move up from March 6, 2009 in terms of calendar days, not trading days. For the uninitiated, this is part of vibrational theory where an entire trend can complete or correct when it vibrates as X number of points per day and X turns out to be an important golden spiral number.

chart

Right now, we are in the Santa season which runs from the end of Thanksgiving right through Christmas. It kicked off early last week when traders and investors “celebrated” stellar sales numbers for Amazon’s Cyber Monday. Seasonally, the cycles call for a consolidation or profit taking for as much as a week somewhere in this Santa season.

Now we have a new problem. Remember how we’ve discussed this market is very similar to 1937? Lord Rothschild likes to compare the current situation to the late 1930s when the market was shredded by the geopolitical situation. We may have our wild card.

Lately, there has been lots of speculation Trump will recognize Jerusalem as the capital of Israel and today it became fact. Most of the Middle East is up in arms about this possibility. For the purposes of our market work, no political opinions are offered. As a long-time market watcher and trader, the probability of violence and social unrest will be multiplied exponentially.

Next week Erdogan of Turkey will host a huge summit for the entire Islamic world as they decide what their next move will be. The bottom line for us? There hasn’t been peace in the Middle East in our lifetime. It's not likely to happen anytime soon.

This is Santa season and at least markets won’t have to deal with the possibility of unwinding something they were promised for a whole year. But now they are moving on to other issues.

We are likely to see a continuation of the holiday season rally, but for now, it is time for the interruption phase of it. The next logical point for a market peak is early January, but in some years where that happens part of the market can top by the middle of December and we don’t recognize until we see it in the rear-view mirror.

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