Last week I shared the Fourth Turning is here with the Ukrainian conflict, states Jeff Greenblatt of Lucas Wave International.
The Fourth Turning is many things, but primarily it’s a war and revolutionary cycle. While military experts believe hostilities could be over soon, we are at risk for hostilities expanding. China is watching closely and could look at Western weakness as a sign it's their time to deal with Taiwan. Here’s the problem. If the West stands by as Russia overtakes Ukraine, the Chinese might view it as a once-in-a-lifetime opportunity to take Taiwan. If the West decides to defend Ukraine, this war can morph into something much larger.
Those are the choices and now you know why out of two choices, I like to pick the third. Unfortunately, it’s too late for that as diplomacy has failed. Several alternative media sources stated as early as November war would be coming to this region by late February or early March. Obviously, somebody knew what they were talking about. That’s the value of good information, its hard to stay bullish in an environment where the higher probability outcome pounds the war drums. As you know, as of January first, I have not been bullish.
Last week I also showed you the historical archive of the Dow during the first half of WWII. It started with the invasion of Poland, but by the time the market bottomed three years later, Hitler conquered nearly everything from just west of Moscow to France and south to Egypt. The reason the market bottomed is the Germans had maxed out their economic capability to build weapons while the US “Arsenal of Democracy” was only at 20-25% of its capacity. It took another three years to achieve victory. Markets don’t like wars. Truth be told, this isn’t a major war yet, but the rhetoric concerning the use of nukes puts geopolitical risk off the charts. We’ve never seen a situation where one side or the other talks about a nuclear exchange just about every day.
This is insanity.
Did you see the Nasdaq Bank Index (BKX) lately? It looks terrible.
This is the third time it’s under the 200 DMA since December. All I’m going to say the banks have their backs against the wall. Another strong distribution day from here could loose an avalanche. Is that going to happen? Not if you have normalcy bias, you automatically will say it won’t break down with the logic is it hasn’t, so it won’t. Right now, anything is possible. One has to look forward at the possibility of a bear before it happens because the crowd will only acknowledge the problem when its already too late.
Look at the Ten Year Note (TNX).
It was already in hot water as it pierced the 200-week moving average. It came back up but look at it now. The weekly candle as of Wednesday shows an upper tail failing right at the long-standing trend line which means it is now a potential bearish polarity flip. Support from April broke in January and is in danger of real technical damage with one more good distribution day. The week is not over so maybe the tail won’t stick. If the candle finishes the week looking like this, it does not bode well for the days and weeks to come.
Do you see a theme? Interest rates and banks are one distribution day away from the potential point of no return. The economic environment is not improving, and a case can be made its getting more difficult with each passing week.
Going the other way is Bitcoin (BTC) which tested the downside and held.
Right now, it’s close to that 67% retracement vibration it could not take out the last time it was there. This chart has now tested the breakdown for over a month. I’m satisfied we are close to this pattern playing its hand.
Most people alive today only know WWII from videos and books. War is horrible and most people have never experienced it. If you were born after WWII, you experienced the greatest period of economic prosperity in world history. It was a gilded age most of us never appreciated, but now its over. I’m here to tell you if this war expands, the market is going to experience a prolonged drop not many are psychologically prepared to deal with.
I’m sure you’ve noticed US policy concerning the Russians is built around sanctions, which amounts to economic warfare, which is designed to block Russia’s ability to financially wage war. It’s not going to work. I’m sure you’ve studied history, so you know Napoleon and Hitler both failed to tame the Russian bear. Let’s be clear, I’m no supporter of Russia, but they did carry the brunt of the war against Hitler and will not be put in a similar situation ever again.
So, here’s my bottom line. I would not buy this stock market. Period. If you are a long-term investor, you are staring down the barrel of a bigger conflict. If you paid close attention to what the Canadian government tried to do with the protestors and now consider these sanctions, one could come to the conclusion the banking system is not very stable and that does not bode well for longer-term investing. Thankfully, Trudeau walked his banking freeze scheme back. But the risk is still there as US truckers are on the way to Washington, DC.
Don’t take my word for it, there’s a reason the BKX looks so bad. I’m not saying the banks are down because of banking cancel culture. I am saying when you look at the aggregate picture, this is hardly a growth environment conducive to a sustained move. Cancel culture and a war could be the straw the breaks the camel’s back.
That doesn’t mean one should hide under the bed. This is a great environment for trading. But it also takes all of your skills and talents to take money out on a regular basis. Now is the time to be sure you have a good methodology you can trust and then trade the pattern exactly as you see it. While this is a terrible investing environment, it’s a great trading environment. Why more traders don’t know how to properly short a stock is a mystery. This is turning into the kind of market where you don’t take a position and throw away the keys. If you are going to be long, there have been several good opportunities since December to swing trade. It’s okay to be in and out of positions. Look at the BKX with its two failed rallies since December 20 and right now finds itself back where it started. If the market does drop, you could be in and out of your favorite stocks multiple times.
This is an environment that is starting to keep me up at night. Am I overreacting? In terms of bull vs. bear markets, the main difference is the bull comes right to the ledge but never jumps. We are right there, staring into the abyss. The only way we get out of this scot-free is if the Russians somehow back down. The entire world is against them.
Do you think Putin will back down?
There is a greater chance of a nuclear exchange. Personally, I don’t think either will happen and the Russians will end up winning this conflict. Unless cooler heads prevail very soon, I suspect the market will break down and 2022 is going to be the tough year I anticipated. Forget about the war for a minute, the Fed continues to have no answers for inflation. That’s all you need to know.
For more information about Jeff Greenblatt, visit Lucaswaveinternational.com.
