Time window season came and went. Then there was Facebook, which got clobbered just as markets hit 618 days off the February 2016 bottom. This was one of the tougher windows the market has encountered this century. There was plenty of reason to believe the 610 would sustain and in certain instances, it has. But for the most part, markets have been higher than they were in the middle of July.
It got to the point where they started playing the buy the rumor game with the GDP report. Despite Facebook getting crushed much of the market did rally into Friday morning and it was the first day all week all the indices were universally down. GDP was very good at 4.1% but the market is not the economy. If the market were to top out here, the economy would start feeling it in a few months.
But there are problems and Facebook represents one of the bigger ones I’ve been talking about for months. I’ve come here many times discussing the division and scandal that plagues this nation. We are at the point where if you don’t see it, you don’t want to see it. But our market work is different and with the exception of the FISA scandal in February, markets have ignored the problems. I’ve always said markets will not react until it takes it personally. With Facebook, that’s exactly what happened. Zuckerberg gave cautious guidance going forward, warning things wouldn’t be as rosy anymore. The stock got crushed. The next day Twitter got crushed as they blamed their problems on purging "bot" accounts.
I don’t know how these social media companies expect to maintain earnings when they alienate and push away half their user bases. The opinion page of the New York Post ran this headline, “Wall Street finally taught Zuckerberg the lesson he deserved.” It has come to the point where these social media companies deny ad revenue from GOP candidates running for office. If you think this is the end of it, you are kidding yourself. There are now numerous complaints of censorship sitting on the President’s desk and they finally have started serious investigations.
What a bear market does is correct excesses in the economy. I’m not saying we are in a bear market right here although the Dow did top nearly six months ago. What I am saying is all you need to do is look to social media companies and you can readily see the need for correction. It may very well come from the anti-trust people. Trump never wanted to do this. First of all, I think he understands that if he goes after these technocrats, he kills the goose that laid the Trump rally egg. If that happens, he loses a lot of his political capital. He ran on the economy. He’s delivered but if the market tanks, then he’ll have problems. Last year he bragged on a weekly basis about how the stock market was higher. That’s right, President. But he’s a smart businessman who should’ve known that what goes up, inevitably will come down.
So, he didn’t mess with it. Part of the problem is I don’t think he understands how shadow banning works and I’m not going to get into the specifics of it in this space. But the New York Post stated in that article the market did what Congress refused to do with Mr. Zuckerberg. Trump also refused to act up to this point, now he’ll have to deal with whatever the market decides. Here’s the problem, if they don’t deal with the shadow banning and illegal refusal of not accepting ad revenue from GOP candidates, it's going to impact the election in November. Trump is waking up to the fact that is more important than the rally named in his honor. It is highly probable the stock market just collided with history in the making. While this event might not be as dramatic to the market as the threat of breaking up Microsoft was to the Internet bubble, I think we’ll remember this sequence years from now.
So, I refused to make predictions about this big-time window, instead of managing it and telling everyone you must manage risk. Since the second week of July, risk was very high. It still is. But there it was, day 618 came and the news event manifested, almost by magic. I do think something has changed.
My next thought turned to whether the Facebook event was a black swan. We usually think of black swan events as a terrorist attack or a bank failure. But the reality of a black swan is something that nobody saw coming. Even as I’ve talked for months about the scandals and divisions in this country it would be intellectually dishonest of me to say I saw this coming. I saw something like this materializing, but not last Thursday. While this was not a bank failure, the event took on the spirit of a black swan. As I’m writing this, the Nasdaq not only is lower than after Facebook trimmed more than $100 billion in two hours, it's even lower than it was on Friday.
But we still can’t confirm a top simply because the Dow refuses to quit. This is still a divergent, rotational market. As a snapshot, at the moment I’m writing this the Nasdaq is down 58 while the Dow is flat. They’ve been taking turns as you know. My word of caution is don’t be the last man without a chair when the music finally stops for good.
Finally, here’s what the Nasdaq-Facebook crash leg looked like. I always catalog these events. Whether it was a black swan is open to debate but this was a crash on a 1-minute chart. This one was spread out over the down time in the afternoon but it’s still 44 minutes of live pattern. The range is 141.50 and the C leg is 98 points. So, the only thing that does work here is the range/C leg ratio which is 1.44 in the 44 minutes. In actual time (Emini closes down for a while) there is 119 minutes and 141.50 points in 119 minutes is 1.189 points per minute. What I’ve found about crash legs is they are some of the most complex legs to uncover. This one was not easy and the fact the calculation was as complex as it was proved to me this was a crash. I have crashes of all sizes in my library and they all have one thing in common. The actual square out vibration calculation is well hidden under the hood. Thankfully, most trading opportunities in Kairos are not that complex.
Going forward we now have to deal with the Mercury retrograde period, which could leave markets choppy for the next two weeks. I do think something has changed and its likely to become more apparent in September which is the historically least friendly months to the stock market. Just as I managed the time window, I’m taking this one step at a time.