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Cycles Interrupt the Pattern. Get Serious About Locking in Profits.

01/31/2018 4:47 pm EST


Jeff Greenblatt

Director, Lucas Wave International, LLC

It’s time to get serious about locking in profits for this cycle. Some of you may also be able to get short. There are intraday opportunities.  For the swing trader and larger, wait for the C wave, says Jeff Greenblatt, editor of The Fibonacci Forecaster Wednesday.

There is no part three to my last two posts which described business as usual for the markets.  We have an interruption in the pattern and quite possibly a change in sentiment to go with it.

Markets peaked on Friday which is significant because it was 611 days (Fibonacci 610) out from the August 2015 low. This is working now despite the fact many markets bottomed in February 2016. As it turns out, the Dow bottom is August 2015.

Suddenly, for a market that shrugged off every problem in 2017, it seems to be worrying about everything. Bond prices keep sinking which means rates are rising. With each passing day, it appears as the bond market is confirming a new bear market for prices.

On Monday, the crowd suddenly worried about rising rates. They didn’t seem worried last week, what changed?

On Tuesday healthcare stocks like Cigna (CI) gapped down on news Amazon (AMZN) made a deal with Warren Buffett and JP Morgan to “fix” healthcare for the employees of the three companies but with a bigger eye to change the distribution of prescription drugs in this country.

The news was greeted as well as it was when Bezos bought Whole Foods and grocery stocks sank.

Even Apple (AAPL) was under fire for problems in older iPhones concerning software updates. The CBOE Volatility Index (VIX) spiked all the way up to the 15 handle. Imagine that.

These are serious issues but don’t come close to the scandal brewing in Washington where the House Intelligence Oversight Committee voted on Monday to release a memo they are saying can be very damaging to the republic. We don’t know exactly what will be redacted or not so it’s hard to say how it will affect the stock market. But since the market is on the other side of the time window, it’s perfectly normal psychological behavior for the crowd to behave differently.


Last week the market was excited for Trump to speak in Davos. Many people thought the Dow Jones Industrials (DJIA) would keep going and be at 27,000 by the end of this week.

It doesn’t work that way. Serious traders realize markets always go through a series of buy the rumor, sell the news sequences throughout the year.

For me personally, what happened on Monday I thought would happen on Friday. Monday was the first day in recent memory where prices struggled to go higher on my 1-minute YM charts.

By Tuesday it started turning serious.

On Wednesday the media was suggesting the two-day selloff was over. For the case of Boeing (BA) it was since it made a new all-time high.

Could there be a case of here we go again? We can’t rule it out as technically the high is not confirmed. But given the big-time window and number of headwinds suddenly appearing on the stage, this time it does seem a little different.

Areas like the Transports (DJT) and the Philadelphia Housing Sector Index (HGX) are getting hit and look like they can go lower. We’ve seen Transports oscillate between disaster and euphoria in 2017.

But we haven’t seen housing stocks waver. If this fear of rising rates continues, there is reason to believe this group can continue to get hit. Health insurance providers have also participated in this rally. For the most part, we’ve watched tech, banks, transportation and housing sectors. When other important sectors start getting hit, it’s time to take notice.

For now, it is time to get serious about locking in profits for this cycle. Some of you may also be able to get short. There are already intraday opportunities.  But for the swing trader and larger, it’s prudent to wait for the C wave which is the leg after the secondary high. Don’t be surprised, it could happen. You saw what happened after the Fed announcement.

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