Bullish Equity Cycle is Running out of Time

07/18/2019 9:10 am EST


Jeff Greenblatt

Director, Lucas Wave International, LLC

Markets are suddenly very questionable while the news is becoming increasingly more difficult, writes Jeff Greenblatt.

Last week I mentioned the beginning of time window season. Here’s where we are at.

We are still looking to the Russell 2000 and that 617 week/1618.37 high. Other areas hit new highs but we have this nagging divergence, which is not healthy for the market because the small caps are not even close to leading. You can argue we are one distribution day away from the small caps leading to the downside. That would change the equation bigly, right? But for right now, the Russell 2000 is exhibiting typical July trading. So, we are coming to a bigger 144-day time window in a week from now. For now, I’m looking at two things on the SPX. Number 1 is the low at 2728.81 and this stall is 29 days up roughly. I’m also looking at 2954.13 and 54 days which is today. What you are looking at on the chart are typically price and time vibrations. The complication here is we have several lining up within days of each other.

Ideally, to make the cycles clean, we’d get it to turn up by Thursday and start seeing some clean highs in the time window next week, which is also 987 days back to the Dow 2015 low. These are not predictions, just possible scenarios. The only new information I had coming into Wednesday was the set of numbers doesn’t call for a low on Tuesday night. I got my extension.  A more extreme view would be this set of readings drops the market for a week and we invert at the low next week. One step at a time.

Let’s talk about precious metals. Have you seen silver lately? It’s above the June seasonal change point high, which is better than gold relative to that point. Gold is also having an exceptional streak right here and this has materialized out of what looks like a triangle. So, we had the high a few weeks ago, it could’ve been the end or something more severe but all we’ve seen is a consolidation. For bulls, that’s the best possible scenario. On the longer-term weekly continuation chart which accounts for the whale type investors, they haven’t yet taken out the 187-88 week high but it looks like it’s going to happen. Generally, when precious metals do well, it means there is some type of domestic or geopolitical risk coming down the pike. What could that possibly be?

On Tuesday Trump said we have a long way to go on Chinese trade talks. In the past month we’ve spent so much time looking at the Fed Funds Futures and how they are relating to interest rates. The market has priced in a rate cut whether it happens or not. Lately, nobody has been talking about how a trade deal has also been priced into the market. How do we know? Remember how the crowd loved all the happy talk in the days leading up to the G20? The crowd has fallen for it every time. Some participants are paying for it today. The only question is whether it starts to rebound very soon or if we wait until the 144-day window next week to invert.

Concerning interest rates, the Reserve Bank of Australia lowered rates at the start of the month and Australian stocks haven’t been the same. They did not have the desired impact. The knee jerk reaction was down, they somewhat recovered but have been shaky the whole month. They are more concerned about negative rates than any benefit they might gain from easier money. It may very well be a lesson for the rest of us. Even if they do lower rates, its likely baked in the cake so the market might let out a yawn as opposed to any big rally. If they don’t lower rates, the market might throw a fit and start to sell for real. We are in a season of high risk. Luckily the next Fed meeting doesn’t line up with the time window which is next week. The Fed meets the week after that.

In summary, June was a lot better than many anticipated. July is more according to plan if you believe in the four-year Presidential cycle, which likely peaked at the end of May. Markets are suddenly very questionable while the news is becoming increasingly more difficult. Precious metals are very close to an important breakout and from what we’ve seen lately, looks like it’s going to happen. Before you know it, July will be over and we’ll be a month closer to the most volatile season of the year, the September-October period.

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