What's more important than China?

January 19, 2016 08:28 AM

The business media is calling the first two weeks of January the worst performance to start a year in stock market history.

Think about some of the best performances in history: The '27 Yankees, the perfect '72 Dolphins, Ronald Reagan won 49 states. What we have here is greatness in reverse. It’s not easy to pull off.

Last week, in my own way, I called attention to the fact that I believed the mass crowd psychology as expressed in Germany had reached the point of no return. Nothing happened last week to change that view. I don’t mean to pile on because I’m only the messenger, but I did warn anyone who was listening since they shut down Brussels that weekend that a consumer-led economy could ill afford to lose even one day of holiday shopping. In fact, this is what I said about the European economy in my Nov. 29 update:

“Unfortunately whatever they are going to do isn’t going to be nearly enough to halt the damage to the European economy that we’ve seen from the recent terrorist activity. How many days was Brussels on lockdown? This is a fragile economy to begin with and when we get to the holiday season every single shopping day to Christmas is vital.”

I was referring to Europe, but it could easily be about our economy as well. In fact, since I only come here once a week, you should know this was a recurring theme in many of my reports to clients in December. This is what I wrote in my Saturday update to clients:

“Well, the first chicken from the holiday season came home to roost much as I told you it would last month. Obama’s own Commerce Department said retail sales posted an unexpected drop in December falling .1% from the previous month. Also the National Retail Federation said holiday sales increased 3% in November and December but fell short of expectations which were 3.7%. They blamed unseasonably warm weather and low prices. So on Friday the Dow was down over 2%. Didn’t I tell you there would be a day in January where weak retail from the holiday season would come home to roost?”

Quite frankly, in all my years of doing this work, I’ve never heard the media blame unseasonably warm weather in December as the reason for lackluster sales. That’s the kind of thing they usually pull in the summer time when the thermometer cracks 100° when people won’t go look at model homes because they’d rather be at the beach.

Now we have a market that refuses to bounce as a garden variety correction would. I know that when markets get oversold there is usually a day where the snapback goes sky high and I’ve been warning clients it could happen at any time, yet it has failed to do so. Coming into Friday, the SSE was down into the 144-day window and it put in a bullish belt, which is usually a good reversal pattern (or at least a good change of direction signal). Instead they established a new low by Monday.

Why is that? It’s fairly simple—oil failed to respond. What we are seeing here is that the new 21st century economic indicator of choice has become more important than China. Coming into Friday oil had traced out a tight consolidation that refused to bounce. The cluster of lower oil and the poor holiday retail figures were too much to overcome. What really matters at this point is our view that August wasn’t the end of China’s bear and you’ll recall what should have been a slam dunk point of view was actually the minority. There weren’t many people who thought China would end up lower.

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About the Author

Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.