When the time window triggers, it usually hits like an Aaron Judge home run. It becomes obvious very soon. The 2007 top made a lightning bolt on my 5-minute, E-min S&P 500i at the time. But this one? It’s holding but you wouldn’t know it. Right now, it’s a stealth high.
Last week at this time we were working on a high that hit at the beginning of the window and, indeed, patterns started to roll over. NFLX had a terrible earnings report and got crushed in the aftermarket last Monday night. That’s fair enough. But on Tuesday it put in what is called a bullish belt hold. That’s where it gaps down but the end of the gap turns out to be the low for the day. Lots of stocks put in green bars that day. In terms of psychology, bears had to wonder if they’d ever get a break.
Do you remember the Mark Haines bottom? He called the 2009 bottom to within an hour or so right on the air. What happened was weeks of brutal action and then suddenly the Dow was up hundreds of points and gave it back the same trading day. If memory serves me correctly (if not I’m close) the next morning opened even lower. At that point it felt the markets were going down and would never come back again. That’s when Haines made his call. As it turns out hope dies hard but fear drops like a rock so this situation isn’t as intense. That being said, after NFLX got hit and recovered, after weeks of complacency and an upward drift we finally had the feeling nothing could stop this bull. But that’s where it stopped.
Do you realize NFLX has not been higher since and now down four straight days? Europe has also been lower since then and today it looked for the first time like the ASX could finally be rolling over and the very good reading in the XJO has been defended since July 10. The Nasdaq stalled at the back end of this window but 89 days from the prior high back in March right there on the connect the dots trend line.
As I’m writing this the Dow is still only down 47 points for the morning. If we are really rolling over this time and we are far from being confirmed, it has to be the slowest post-window move I’ve seen in years. Then again, where there is 610 there is always 618 and markets could be waiting for Wednesday-Friday to reveal their hand. Bulls, you are not out of the woods yet. I’ll conclude the bearish sermon with this. If this does turn out to rollover it has the potential to be a very dangerous correction. Why? The development of it has been very slow. The Dow topped in the first 610 window and has stayed in the middle of the range for nearly six months. How much slower can this monstrosity develop?
I had a discussion with my wife yesterday about the housing crisis from last decade. I told her it was going to collapse at least three years before it happened. I didn’t have a column in those days. She thought I was nuts but time did prove me correct. She wanted to know how I knew. Aside from the fact they were giving houses away like candy, there were other signs. When the Internet bear ended, as a sane and rational person I expected the W administration to bring the economy back by rebuilding America’s infrastructure. I know that was crazy to expect common sense outcomes. It worked after the Great Depression. That was my thinking in those days. The fact they went 180 degrees in the opposite direction with the Fed's former head Alan Greenspan’s easy money policies, was a very bad sign. The country had fun for a few years but we pay for it to this day. Never mind the politics of it, the right thing to do was get people working again by fixing the country. Never mind it's 16 years later and the roads are still falling apart.
So now we come to this situation and without getting into a political sermon, I don’t like what is going on in this country. Secretly, I think a lot more people are getting concerned as well. I’m not a political guy, my job here is to steward my stock market knowledge. I believe there is going to come a day where the stock market isn’t going to like what is going on either. Up to this point, it hasn’t taken personally yet. As I saw that housing crisis all those years ago I see a different kind of crisis gripping this country. But getting back to the charts, whatever is developing is doing it in slow motion. Bears that start slowly usually end very badly.
How do I know? Simply put, the Dow topped six months ago and the VIX is still at the bottom of the range. The complacency needle has not moved with one exception. When it did move, do you remember what happened? The VIX hit 50 on Feb. 6 in the overnight action so we never felt the panic during the regular session. Why did the VIX hit 50? It was because of the FISA scandal. Now we are six months later and no closer to legal resolution than we were back then.
Right now, the market isn’t looking at these problems but here’s one they might be looking at very soon. Recently I told you the bond market likely topped out in its bear market rally. This bounce was your classic Elliott/Fibonacci pattern where the C wave was 61% of the range. With bears, the C does not extend. The past two day's price action has been crushed. If this keeps up we will finally get a day where the Dow will be down 400 on ‘interest rate fears.’
The turn is not confirmed but I believe we are going to get a resolution to this timing pattern one way or the other by the end of the week.