JPMorgan (JPM) has broken out to new highs this week, but sits near a perilous technical level, writ...
Keep Your Eyes on the Road. Here We Go Again Part II
01/24/2018 12:00 pm EST
Are we at risk for a correction? Try to stay with the bull as long as you can, raising stops to lock in profits but don’t take your eyes off the road for a single day, says Jeff Greenblatt, editor of The Fibonacci Forecaster Wednesday.
Last week I came here warning about Facebook (FB). It recovered.
What can possibly slow this market down? It wasn’t a government shutdown, that only lasted a day. They came in and bought the dip on Facebook without any fear of the implications. Earlier in the week, calculations I normally have for intraday pullbacks, good calculations did not work. Nothing goes straight up, unless it’s the current stock market. One normally expects an ebb and flow to the action and we’ve been sorely challenged to even get that.
I’ve heard political people say the market is not in a bubble because the president lowered taxes and swept away regulations, unleashing the animal spirits of the sleeping giant American economy. So, if you look at it like that, it’s not a bubble.
But that’s not how one decides if there is a bubble. All you have to do is look at the CBOE Volatility Index (VIX). How many realize the highest level for the VIX in 2017 was 17.28? This was the first year we did not have a reading above 20 since 2005 and we all know how that turned out.
Of course, the economy is better and since the market is a leading indicator it should be good for months to come. But in normal market conditions one must have at least some trepidation or butterflies in the stomach when buying the dip. Even great actors and athletes get nervous before a performance. But the velocity of the recovery suggests there was none. The market has now lost the possibility of contagion if one of the FAANG stocks were lost.
Since I mentioned last decade, recall a very important sector, the PHLX Housing Sector (HGX) peaked in 2005. It gave the market an important divergence that spread out over two years. I’ve been looking for a divergence to form for the past year. Mind you, not that I have rooting or investing interest in a bear phase, I don’t.
But I do know if the market is going to turn, it will leave a clue and give us a sign. There were a couple of times last year where key sectors or stocks did catch cold, but they recovered. Right now, the only thing to be concerned about at least in small measure is the Dow Jones Transports (DJT) which is working on a couple of intermediate sized square outs. Other than that, the only cold water I can pour on them is some intraday shorts once again appear to be working.
By the way, in case you’ve noticed we didn’t get much of a pullback in the precious metals and I never waste a good teaching moment. The best example here is the GoldMoney (XAU) which found a nice low on Tuesday with a smaller degree 62% retracement but it vibrationally squared out at 63 hours from the prior low.
This is very significant because it took out an important near term high set on January 15. That high came in on certain gold charts at an 89% retracement in 89 trading days, potentially a formidable high. But there was formidable low back in December and one of them had to fall. It now looks like there is a strong underlying structure to this move which would allow precious metals to go higher. There now can be little doubt bitcoin (BTC) was interfering in the prosperity of the precious metals and it also looks like the bitcoin bubble has also popped.
Are we at risk for a market correction? There are some smaller readings which could give us a shake of the trees. In the bigger picture we live in strange times. It seems more news happens in a week than we used to get in a month. Try to stay with the bull as long as you can, raising stops to lock in profits but don’t take your eyes off the road for a single day.
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