Equity indexes are reacting to various price-time turning points and seasonal tendencies, reports Jeff Greenblatt.
The question the business media is asking is why the market is selling off. The market is selling off for all the reasons we’ve discussed recently. All it took was a bearish Kairos reading to get it going. All of us know that September is the statistical graveyard for stocks. Lots of folks went short based just on that information. The problem was the market had lots of bullish Kairos readings to drive the prices higher the first part of last month. We’ve covered that here.
Last week we talked about what can happen on triple witching Friday. In my timing work, that is the seasonal change point. This year, both of them hit on the same day. Seasonally, the tendency for the market is to go lower.
Still, it needs the technical catalyst. For those of you following my Kairos work over the past couple of years, Oct. 1 is exactly what bears have been looking for. From the secondary high its 61 bars on the 180-minute chart for the ES (see chart below). Since the secondary high is roughly a point from the top, it’s also a 61% retracement. For those of you who are familiar with the 61% retracement you know many of them sustain or they won’t. In our work, we don’t put the same amount of weight in a 61% retracement as in prior years unless it also has a square out attached to it. This one has it. That makes it potentially all the more powerful.
We’ve discussed the problems here. In terms of sentiment, my fears are starting to be realized. The Hong Kong geopolitical situation should’ve been resolved by now, it hasn’t. We’ve talked about the Fed repo action. By the time this round ends, they will have injected around $2 trillion into the system which is three times the amount of the Troubled Asset Relief Program (TARP) following the 2008 credit crisis. All they talk about is lowering interest rates. Then we have the new impeachment situation. Dare I mention they are also trying to remove the UK Prime Minister at the same time?
Yes, the market is a good indication of future economic conditions. The Purchasing Manager’s Index (PMI) reading, which is the October Manufacturing ISM number came in low at 47.8%, the lowest reading in 10 years. That appears to be the straw that broke the camel’s back. Crude oil also took back the spike from last month due to the attack on Saudi Aramco. Oil is also an excellent economic indication.
There’s likely more to go. There are two reasons for that. First of all, this is a very good Kairos reading that jumps off the page. When I turned on the television on Wednesday, I didn’t see any fear. It was the usual sentiment we get from a distribution day. Different guests were asked their outlook on the market. The host asked what they were buying and what the public should buy. Some said stocks were at a discount. Others said there were bargains to be had.
It’s amazing you never hear them talk about getting short. In addition to the near-term setup we discussed above, the NDX finally broke through. We already knew it peaked on the time window in July. But it has demonstrated excellent replication in the form of a move up of 1091 and then followed up by a 92% retracement (see chart). That wouldn’t be important unless you understood the many ways a pattern could square out. But the NDX had a trend line that contained the action since the beginning of August. The top was over two months ago, now we finally have some serious technical damage.
In summary, we have a near perfect storm of cycle points. We had a longer-term time window fire off at the top, and to start the month a trading setup that fired off to get this sequence going. In terms of psychology, there are more conditions to be overcome then we’ve faced in a very long time.
The last time the Fed injected this much money into the system was the last financial crisis. The last time Congress attempted to impeach a President was 20 years ago. The country has never faced both of these events at the same time. Is there even a single reason to believe a bull move could be sustained?
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