Is Australia Warning About Our Future?

07/11/2018 3:45 pm EST

Focus: MARKETS

Jeff Greenblatt

Director, Lucas Wave International, LLC

Give the market the respect it deserves, stay with the bull as long as you can but keep trailing stops to lock in gains, just in case, writes Jeff Greenblatt Wednesday.

Regular readers of this column know I’ve been pointing to the next week for several months. Part of the rally has survived and we are almost there. The “there” is the 610-day Fibonacci window of the rally that started in February 2016. This window starts on Friday and extends into the early part of next week.

Cycles points are fickle. They usually react but some reactions are a lot bigger than others. When I first started doing cycle work publicly I went far out on a limb and learned later I got very lucky.

Back in 2007 there was a convergence of weekly points developing over a month from September to October of that year. The market topped on the last possible date and you know the rest. It turned out to be a generational turn.

Last year we had even bigger cycle points, on a monthly scale and I believe it turned into an acceleration point to push the markets even higher.

Forrest Gump was right; the cycles are like a box of chocolates. This 610-day window has already validated with the Dow topping in January right on schedule off its 610-day window from its August 2015 bottom. This sequence may or may not give us a big reaction, but markets deserve respect which is why you should be aware of it.

While we are waiting on the cycle to potentially complete, are there warning signs it could validate?

As you know there have been several nagging divergences. Housing and transportation stocks have been in trouble for weeks.

The bond market is in a confirmed bear which means overall a higher interest rate environment. Back in May I warned there was enough in bonds to set off a bear market rally which would give everyone some interest rate relief. That was two months ago and now the long bond has a set of calculations which suggest the rally could be over. With a range of 6.97 and a last leg up of 4.25, that would mean the C leg is roughly 61% of the move, a common occurrence in bear market rallies. If the bond rally in prices is over it wouldn’t be long before we wake up to a day where the Dow (DJI) could be down 400 on interest rate fears again.

I cover the Australian markets and most of the time there is nothing new to report.

The ASX market has been up except for their Financials which were down the first six months of the year.

But recently they’ve been in rally mode, just as our PHLX Housing Sector Index (HGX) was getting in trouble. So, I woke up with great excitement the other day to see something different. Financials stalled and when the Aussie market means business, it does line up with its banking sector.

What I see is a 68-day rally which by itself doesn’t mean much. On the other hand, we have a square of nine reading at 675dg which by itself doesn’t mean much. Put them together and we have what I call a Kairos 2.0 reading where the time element is lining up perfectly with the square roots. For those who don’t know, the square of nine is simply the square root of the high minus the square root of the low. Take that difference and multiply by 180 and we get the conversion to degrees.

When I saw this developing on Tuesday morning my first thought was whether there would be any follow through. There was.

Then I started thinking about whether Australia could be a warning indicator of what could happen here as our 610-day cycle matures. So far it is working.

Eleven years ago, I went far out on a limb and predicted the major reaction seven months in advance. Other well-known cycle followers only started calling for a market top by August of 2007. The Dow topped in 2007 right at 262 weeks. How foolish I was! Over the years I’ve learned that doesn’t necessarily have to happen.

You can make predictions and be a hero or make money, but chances are you won’t do both. Now I keep these things in the back of my mind but stay awake as the time gets close.

There are many warning signs which we’ve covered in the past year which are starting to manifest. When cycles end, they do end hard and we’ve come out of the low volume holiday trading week with a bang.

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