The market is basically where it was at just prior to the Q4 correction, eventually it will need to pick a side, notes Jeff Greenblatt.
It’s very tough for bears these days. They had an incredible calculation for a top in October and they got fed for three months. It’s been said by many that timing is everything. The correction hit at the best point in the four-year presidential cycle. Instead of staying down, markets recovered. Now we are on the back end of the cycle and all the bulls did was kick field goals, no touchdowns. Not many realize it because so many think the market is scoring one touchdown after another these days.
Where is the market now in relation to October? It’s around the same place, right? The problem is going forward the stock market will not have the wind at its back much longer. The teams are set to change sides and the bulls will be playing into the wind as opposed to with it. On tap for this week is another small opportunity for bears. Wednesday started the 144-day window to the S&P 500 top back in September (see chart below). Since Friday is a holiday, the window runs through Monday. While the market has been complacent, the gains have been small with the Nasdaq Composite hitting for a near perfect doji on Tuesday with the opening and closing price at 8000. Given the NASDAQ topped at the end of August, it has its own time window starting Monday at 161 days. So, bears do have a window for a change of direction lasting nearly a full week.
We’ve been monitoring the bond market. Have you noticed it broke down? That means its inching to higher interest rates despite the best efforts of the Fed to keep rates low. The Fed has no control over longer term rates. But the crowd isn’t thinking about it. All they know is we are in a position where the Fed suddenly turned dovish. Its almost as if the market is getting a free pass.
The sentiment on the business channels is the Fed became dovish and this greenlighted the market to go higher. Might they raise rates now that the market is going up again and it appears the economy is roaring? Nobody can say for sure but that’s not the issue here. The fact is the Fed for at least the next few weeks and possibly months we know they won’t raise rates. This has the feel of 2011 when we talked about see-over free market pass the hedge fund guys predicted. If you don’t remember Bob Pisani of CNBC went to a Manhattan art benefit auction and lots of hedge fund guys were there. This was April-May 2011. The hedge fund guys predicted risk would be small all summer, they worried about the fourth quarter. They called it the see-over trade. Is that like the sea-food diet? See, they were looking beyond the third quarter because they automatically assumed the market would continue to rally all summer. But it topped in May and bottomed in the fourth quarter and it was a very damaging correction. It has the feel like it’s going up forever again right now. That doesn’t mean it turns tomorrow, but the four-year cycle matures in about six weeks.
Let’s talk Socionomics for a minute. Just seeing that spire on the top of Notre Dame cathedral go down in flames was astounding. Rich Lowry of the New York Post wrote, “the collapse of its spire was almost too much to bear.”
I don’t know very much about the history of this institution but I know enough to realize it’s a massive loss on many levels. To me its symbolic of Western culture as we’ve known it collapsing into a heap of rubble. Is it representative of a pending stock market top?
The bears have another chance to step up to the plate. This is now a test of the market top. It has a very good square out spread out over 18 years, which did deliver a serious correction. The question now is whether it will be defended. Bears have a week to figure it out. If they don’t act here, we could very well see a move up though Memorial Day when the cycle matures. Many cycle people agree the market will lose the wind at its back once June hits. It could completely flatten out. As far as I’m concerned, one step at a time. Friday is a holiday so it will be next week before you know it.
