Another week, more mayhem in the the world

July 18, 2016 08:43 AM

Another week, higher prices. Another week, more mayhem in the world. What else is new? Last time I showed you the chart of the late 60s. The more I look at this situation, the more I think these times are more treacherous than 50 years ago. Yet the markets continue to behave like a sleep walking steel worker 50 stories above the ground. If we are following the 60's model, there could still be weeks to go before an important turn. 

What have the markets ignored this week? We can’t say they ignored the instability in Turkey because that news broke late Friday afternoon after financial markets were closed. But the terrorists hit the absolute heart of European tourism on a national holiday. They hit on a day the military and president paraded earlier in the day. At one point, I saw French President Hollande triumphantly parading through Paris and the next…well you know what happened. 

After everything that has happened the past couple of years, the terrorist enemy has succeeded in hitting us in such a place that it puts our entire culture in jeopardy. Yet you couldn’t tell the difference in the market reaction on Friday. 

Do you want to know why?

It hasn’t shown up in the numbers yet. But it will. There will come a point in the not too distant future where stocks that are involved in tourism miss earnings expectations. There will come a point where GDP takes the hit. There will come a point where the crowd realizes QE stimulus won’t help. When it hits Europe, it will hit China and eventually it will hit the United States. Unfortunately, what I found out about terrorism is it isn’t so terrible until it hits you personally. I don’t mean to be flippant at such a time we are all grieving so let me explain. Let’s face it, the French Prime Minister told his nation they need to learn to accept terrorism as a fact of life. I’m very concerned we are reaching a point where the speed of the attacks is accelerating and people are starting to get immune to the carnage. Think about it, how many weeks ago did the Egyptian Air go down? Everyone was so concerned about the black box because we wanted to know why a perfectly good airplane could disappear out of the sky. Because it went down over the sea, they had much trouble finding the box. By the time they found the box there were many other attacks. 

Everyone has moved on. 

By the way all they’ve been able to say officially is the plane went down because there was a fire. But that plane went down in May. Since then there were attacks in Orlando, Bangladesh, Istanbul and now Nice. That does not speak to the numerous smaller attacks that never make the headlines. That doesn’t even speak to the ambush of police in Dallas or now Baton Rouge. 

I know you don’t come here to read about terrorism. But part of my job is being a social observer. There is so much it’s possible the market has become inured to it all. When I look at mass crowd psychology, I have to look at the market as an individual person. Of course, mass crowd psychology consists of all of us. But you may have figured out the market has certain behaviors, responds to different events in different ways and like the greedy child that it is, only responds when it finally gets its hands put on that collective stove. Apparently that hasn’t happened yet. With the VIX down there again, I feel perfectly justified in accusing the market of being very greedy. Let those earnings start to slip…

But I have to tell you, putting all of this aside, my indicators called for a reversal right after Brexit. As Brexit materialized it looked like it could’ve been a turning point and I pointed out last week, historically speaking there was precedent for the continuation of the rally in the 1968 chart. But turning to the current situation, I did get square outs after Brexit telling me the reversal was imminent. I think I told you the SPX reversed at 1991 after a 91-hour correction. At the same time, we had these 2 incredible square outs. 


Microsoft turned back up at 48 days with a price low of 48.04 and MS, Morgan Stanley turned up at 23.11 at 23 days down. These are classic Gann square outs. This hit the Monday after Brexit. So it really doesn’t matter what I think or want. The square out is the iron rule of the market. I was as surprised as anyone to see all of this lining up so soon after the Brexit crash but this is the language the market speaks. I still have my world view with other larger degree calculations from last year concerning the DAX and the SSE. It doesn’t surprise me those charts are light years away from bull market highs. So it’s a really complex market on a collision course with historical events. So for those of you who went short after Brexit, never covered and don’t know what hit you, this is what hit you. 

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