A broad market downturn is likely to come in the final week of October. "Could We Get a Shake of the Trees?," asks Jeff Greenblatt.
When I was a young, developing trader here in Arizona I had the good fortune to listen to the old Elf of Wall Street. Mark Leibovit. He was one of the elves from the old Rukeyser show, used to offer his daily opinions on the financial news radio here in Phoenix. Every so often when the market would get overdone, he’d call for a “shake of the trees.”
As we know, the Federal Reserve has done everything to eliminate a 2008 style crisis by flooding the banks with all the money they need. Since the overnight rate did hit 10%, who really knows what would’ve happened if they weren’t proactive. That put bears on the defensive, if not extinction. All of that being said, Hirsch stated the history of the SPX being down so many times in this season over the last three decades.
October is not over and if bears are going to feed, they need to do it now or its going to be a long, hungry winter for them. Before you know it, the holidays and Santa season will be here. If you are bearish, I don’t like being the messenger but the market is not dropping during the holidays. That’s just the way it is. But markets have mostly stalled out since last Thursday and we still run the risk of a short but intense selling wave.
It must happen soon or bears just like the New York Yankees, will have to hold their peace until next year. It appears a thrust to the downside has already started. There is a complex Gann calculation that is already working in at least half the market. In my work, it’s a deep reading, one I’ve recently uncovered and since I don’t have all that much experience with it, we’ll see how this goes. Your takeaway from all this is if the market is going to drop at all out of this September-October period, it has to be in the next week. I’m not calling for any grand top with a major bear phase, just a shake of the trees.
Elsewhere the U.S. Dollar has continued to get the follow through we’ve discussed on the larger calculation from the weekly chart (see chart below). That being said, its time for it to bounce now as its already oversold. But I do think a longer-term top is highly likely already in place.
The chart shows where we are in the bigger scheme of things. On Tuesday it looked like a nice bounce could start developing but its already in danger. The wild card is the channel lines. Originally, I was looking for a move to the bottom of the channel but it hit just before it got there. It is a condition that creates confusion because its six of one and half a dozen of the other. I would’ve felt much better if it just hit the line and bounced. Rarely does the market accommodate like that. So, if there is an oversold bounce, its already started or should be close. If it hasn’t already started this pattern is weaker. Gold is starting to behave better again but it has not been the beneficiary of the drop in the greenback. So, either the dollar should bounce because it needs to reset the oscillator and if it does, gold needs to stay sideways like it has over the past week. On the other hand, gold just might breakthrough and the dollar could keep collapsing. If that happens, it would be the lower probability and could turn out to be historic. I’m not in the business of predicting history, but one can’t like the dollar too much here with the Fed creating so many of them.
Ultimately in the bigger picture over the next year I expect both the U.S. Dollar Index and the bond market to have lower pricing. Eventually that will end up sinking the stock market. But for now, there is every possibility the Fed kicked the can down the road. What that means is bears are left with scraps on a shake of the tree (should one materialize) and they may very well have put off a day of reckoning until we get much closer to the election.
