The market is starting to look like it is rolling over for real. My new Kairos 2.0 indicators are giving me great intel on these charts and, specifically, we’ve been looking at the CAC, FTSE and the HGX. All three extended losses last week. It finally came to the point where the Dow, as well as the European indices, gave signals for a bounce. I think it’s too late for the market. Not that it can’t bounce—we’ll get bounces. I think markets are starting to confirm the calculations I’ve been talking about in a bigger way.
Expert technicians will tell you its not the trend so much as the countertrend reaction where the market plays its hand. If that’s the case the Dow laid an egg this morning. I’ve come here on many a Monday morning and told you there were worse readings where the market rallied and ended up sustaining. Now it’s starting to look more and more like we are finally getting that real transition I’ve been talking about since the market found relief with the April and May lows.
Today is another key test as the Dow wrestles with the 200-daily moving average for the third time. You can see it took out last Thursday which is very bearish. But I know some of you watch the 200, which only appears to be important. Take that first low, it was 23344 in 44 trading days. It was also near the 200. Granted the 200 was important. But why didn’t the market stop going down at 23335 in 45 days to pull a number out of the air? But let’s talk about this 200, how many times do they go to the well until they finally come up dry? I’d consider the 200 is more of a psychological barrier than anything else and should it crater this time those money managers will get mighty nervous.
As an aside, what Kairos 2.0 does is allow us in certain situations to take the square root of the high which is 163 and call out different key pivots in a pattern based on a 163 bars in different time frames. On this chart, the 163rd bar on an hourly and then on a 180 min chart gave us trading legs that lasted a week or more.
The Transports are getting hit on a Kairos 1.0 reading and while my intel had advanced warning last week based on the retracement numbers, today is the first day the market is starting to reveal its hand. Tech is getting hit hard as well. Even the market leading biotech sector gapped down today. Want to know what should worry folks the most? Bond prices are rallying. That means, for now, interest rates are steady to lower. We are getting a relief rally in interest rates, yet the stock market is lower. Bonds are in a confirmed bear so what is going to happen when that countertrend activity finally ends?
In the past few weeks, I’ve called out hemline indicators and peace treaties. If I’m the messenger so be it. Last week, members of the President’s cabinet were treated very rudely, the latest being press secretary Sanders. Along with her guests, they were all asked to leave a restaurant in Virginia. Even Stuart Varney on Fox Business spent valuable minutes of airtime editorializing on this issue.
We are traders here. I’m not concerned which side of the aisle you are on. When have we ever seen this kind of behavior in the history of the republic? I can’t remember seeing it in my lifetime. I’m here to tell you this kind of division, this kind of boorish behavior can’t be bullish for the stock market. It’s these little things I pick up along the way that starts to add up over time. You won’t get a headline that says, “President’s Cabinet Abused, Dow Down 500.” Keep in mind the market continued higher for most of the 1960s but double topped by 1968 and all the protests finally boiled over. It found its long-term bottom by the end of 1974 but stagnated through most of that decade. So, we aren’t going to have a day where the market gets hit because of all this social unrest, but over time we might.
One of the reasons we are talking about this right now is with interest rates in a relief rally, the only reason the market is dropping is due to a crummy social mood. The calculations back up this hypothesis 100%.
Elsewhere, crude oil rallied on what was considered a moderate supply increase by the oil ministers last Friday. Upon closer review, it was Heating Oil which did not confirm this jump as it only stayed sideways and has not followed through either on Sunday night or Monday morning.
Finally, I do have a calculation for a high in the U.S. dollar and since it appeared the Greenback has been lower. Unfortunately for gold bugs, it hasn’t yet resulted in a bullish move.
The takeaway from all this is we have a tough environment for bulls and bears because we can just as easily be up 300 the next day as down. It seems like social mood is dripping on us and after a period of time the bucket is full and we barely realize it. One day we are going to wake up and it will be a full-blown bear. The idea now for people who have been bullish for most of this decade is to start getting defensive and draw the line in the sand. In 2000, 90% of the people lost 90% of their money.
A lot of those people moved on to real estate and lost again in 2008. We may very well have a new generation of traders who are learning for the first time. There are two ways to learn. You can either be a student of history and don’t let it repeat for you. The other way is the hard way and I hope people reading this will put in stop losses and protect your hard-earned profits from the last few years.