U.S. markets started where they left off for 2017. Initially, it didn’t look like this would happen. For the week between Christmas and New Year’s, the action was very questionable and by Friday they started selling. One way to look at it was traders didn’t want to hold over a long weekend which is never bullish. This time, they didn’t want to hold over the change of year, either. The only problem with that view is light holiday trade, which tends to neutralize the action.
During long holiday weekends in this environment, traders might concern themselves with geopolitical events. We had one that may very well turn into a white swan. The people I listen to very carefully believe the situation in Iran is real and more serious than the serious social unrest back in 2009. The reason this time is economic. The price of eggs in Iran has gone up 5× recently.
People are not in a good way as the regime is not sharing the windfall they’ve received from the nuclear negotiations. Although I can’t prove it, I understand how these things work and I wouldn’t be the least bit surprised to learn some covert operation has started to get rid of America’s number one enemy since the 1979 revolution. Once again markets don’t have much to complain about when it comes to geopolitics.
But like many years, it might take a feeling out process of a day or two to let the dust settle and see which way the wind is blowing. Right now, we have an interesting calculation for a low in the S&P 500.
In going over this chart that last leg was a small degree 42 points up and then retraced 42%. From there is stalled to the downside at 41 hours. Here’s the disappointing part. With all those 42s lining up all they got was a puny bounce which led to Friday’s closing red bar. Oddly enough, that was into the close. It looked okay until then. But that was light volume and when the computers got cranked this morning somebody told them to buy which all they know how to do now anyway. Believe me, there will come a day when these computers learn there is another word in the dictionary other than b-u-y.
What might bring that on? Nobody knows for sure, but Bitcoin was already off 34% to its recent low in short order. How many realize it took real money, wherever it came from to invest in that bubble? They haven’t hit the long-term people yet but all the Johnny-come-latelies. If it gets another leg down, we will start to talk about wealth destruction with the potential of taking the markets with it. Just a thought for the New Year.
All I’m going to say now is we’ve seen the same type of behavior we saw in 1999. What usually happens is there is one bubble per generation, but we never learn. Did you have to ask if it was a bubble? When people who have no interest in financial markets start asking about it, that’s all you need to know. I’ve heard experts say some people have gains so big they might have trouble paying the taxes when the gains are realized so that could also start a feeding frenzy.
The biggest beneficiary has been precious metals. Honestly, we had a great vibration at the turn but this one has gone beyond even my optimistic expectations as the XAU beyond 61% and silver sitting beyond 78% of the last leg down while coming to the bigger 61% from the September high.
The jury is still out on January and the rest of this week but it’s a good start with the calculation I’ve shown you. I have others as well. I’d say more but I want to see the dust settle as well. After all, support and resistance levels are like sports records. They are meant to be broken.
On the other hand, the bears have been clobbered every time the bull has looked over the ledge. When markets didn’t elect to do that at the end of October I told you the next logical point to look at was January. Here we are. We very likely get a hit this month but right now the indication still looks bullish.