Have we reached the zero hour? Time windows don’t have to validate although much of the time they do. I can tell you one thing, we have a very interesting news event at day 610 off the February 2016 bottom. U.S. President Donald Trump and Russian president Vladimir Putin are meeting as I’m writing this. In any era, when the two superpowers meet face to face it’s a big deal. Given everything, we’ve been through the past couple of years its an even bigger deal. That being said, what it has to do with the stock market remains to be seen.
I’ve been following these time windows for 19 years and they validate to one degree or another most of the time. The only discrepancy appears to be the degree of the reaction. A bull will react but most of the time offer up a smaller reaction. Of course, we could end up with a 2011 or 2015, we certainly are due for something like that.
What I can tell you is oil continues to get hit and there have been several Kairos 2.0 readings along the way that influenced the action, the latest on Friday morning that has given us more follow through and enabled the pattern to get to a fresh low this morning. Does Trump/Putin have anything to do with this? To that, I say right now the price action isn’t going higher. The danger to the stock market, of course, is the loss of oil stocks of which the XOI gapped down to open the week. If we add this to sectors that are already in trouble like the HGX and Transports. The Transports are like the underdog still hanging around in the 3rd quarter which hasn’t been finished off yet. But since last Tuesday the SOX is also very questionable.
I’m also looking at the Australian markets which may have given us an advance warning. Last Tuesday the XJO square of 9 reading squared out with the trading days at 68. There were two down days before the pushback. Since then Australia has stalled. For right now, the FTSE also started the week to the downside.
So, the question remains whether this 610 window is going to validate. In early trade, Dow is a big nothing burger. Lets just project to the end of the day this type of action continues for the sake of this discussion. On Friday the difference in the opening to closing price on the Nasdaq was 1.64. That’s a doji in my book. If we end up with another doji today that wouldn’t be a sell signal but it would be a major warning sign.
All I’m doing is painting a picture. We already have several key sectors that are questionable and in the bigger picture a nagging divergence that has gone on for months. At least for Friday we have tech, which has been red-hot lately, stall out. Let me put it to you this way. Conditions are incredibly ripe for a change of direction and we’ve done just about everything except getting that change of direction. My job isn’t to make predictions but expose the potential problems when markets are going up and look for signs a bear could be ending when it gets to its latter stages. Believe it or not, while markets can and will do whatever they want whenever they want, they usually only make major turns when an important cycle point lines up. My job is to tell you risk is as high as it could be because we are in the middle of one of these windows.
If we were sitting here in a brutal bear and reached the point where the market was going down and it felt like it was going down forever, that would be significant. So significant in fact, the late Mark Haines called the bottom of the financial crisis back in 2009 to within an hour. Right now, we don’t have the kind of euphoria we’ve had at past tops like in 2000 and 2007. We may never experience that again. But we do have the kind of complacency and ‘taken for granted’ attitude the market will keep going higher. If you turn on the business channels and put the scandals aside, all you really hear is how good the economy is going and how well they believe GDP is going to come in. When it comes to the stock market, that means absolutely zero! The markets are a leading indicator and the public won’t generally feel a top for at least 6-9 months. That would be good for the President given the election is only 3.5 months from now.
Here’s the challenge which we’ve experienced numerous times over the past couple of years. Every time the bull gets to the point where it comes to the ledge, it refuses to jump. That’s the biggest difference between a bull and bear. It’s a tough lesson I had to learn back in 2003-04. What I can tell you right now is the most questionable stock market behavior we’ve had since the 2015 correction. This is a tale of two markets, almost like parallel universes. I’ve done all the cycle work. If we get the reaction in the next couple of days, you’ll know why. In any event, you should work at staying with the bull for as long as possible until you actually get evidence to the contrary. You don’t want to be the last guy standing when the music stops. What that means is everyone should have a point where stops are placed so profits are protected. The short-term trader won’t be hurt. The average person who has held the past couple of years should not potentially put themselves in a position where they give back gains and see no return on their capital. Larger players have probably already been lightening up these past months. Others who might want to try to ride out any change of direction will probably employ hedging strategies.
If you look back at the 2007 top at least in the NASDAQ there was only one brutal week from the point it topped to the point the snowball started gaining momentum the first week of January 2008. From the point the NASDAQ topped 7 out of 8 weeks were flat. The real disaster didn’t hit for another year.
I’m very curious to see what will happen and I am literally ready for anything. Consider this update like Friday’s doji in the NASDAQ. It’s not a prediction, it’s a warning.