Once again, the market is taking it personally. How many times have come here in the past year and a half playing Lord Rothschild to warn you we are dealing with a similar market from the late 30’s? What happened was I’ve been talking about it a lot longer but Rothschild went public so it gave the rest of us who are awake a lot of credibility. Still, the market went higher.
It did the same thing in the late 30s, until it didn’t. But you know the famous scene in “Eyes Wide Shut” where the late Sidney Pollack character Victor Ziegler tells Tom Cruise’s Dr. Harford, “Life goes on, until it doesn’t. But you knew that!” That’s the kind of market we are dealing with.
Last Thursday night President Trump increased the tariffs for steel and aluminum on Turkish leader Erdogan. The Lira got crushed and so did European markets. I had a great short setup on Thursday night in the E-mini so I was thrilled even as I had no idea this geopolitical event was going to manifest. That’s another issue.
This is the second event in the past two weeks that took the market by surprise but really wasn’t a surprise. Facebook got hit and with their problems, was it really a surprise? The world is a mess so if any of these issues do implode, should we be shocked? China, Russia, EU, Middle East, North Korea, South Africa are all experiencing generational issues right now. Quite frankly, I’m surprised it’s taken the markets this long to react. But as I keep telling you, the market will only react when it becomes personal. But there is a strange message in the way Trump deals with these geopolitical problems. Ever the businessman, he’ll tell us its not personal, strictly business.
So, while I’m on the subject, we had two issues. One was domestic (Facebook) and the other geopolitical (Turkey). Has anything been solved? In the past two weeks Facebook has doubled down on censorship so that’s a lesson not learned and I doubt Erdogan will change his stripes. But in a weird kind of historical way, good can come from this spat with Turkey.
Since Lord Rothschild brought up the 30s, you can blame him. Let’s face facts, Erdogan hasn’t been the best ally to the West these past few years which is part of the reason those tariffs hit. The other part is a very complex with that pastor they won’t release. Some who have been watching closely are developing a feel for this story. What Erdogan really wants is the Americans to give him Gulen, the Turkish Iman who lives in Pennsylvania whom he blames for that coup against him a couple of years ago. So, they’ve been holding a pastor (of all things) and turned up the intrigue by saying he’s involved. That’s incredibly hard to believe. Trump isn’t buying it.
You can make a case WWII started because the dictator of that era was not stopped. Here, the American President is the first leader on the world stage to stand up to this guy. While I never want to see tariffs or economic wars, there comes a point where these things become inevitable. Europe has submitted to Erdogan and you see the result. Trump will not and unfortunately, this is the only thing guys like Erdogan understand.
The past two weeks has exposed the stock market for being very complacent given the overall domestic and geopolitical issues going on. Are these black swans? Probably not although I did hear several on the business channels suggest this Turkish issue could be one. What it tells me is we are likely to have a slew of these mini-swans until the water fills the bucket to overflowing as we reach the point of no return. When that is, nobody knows. But this peak did hit at 89 days up from the low for the Dow. We are about to hit 144 days off the Dow top next week. All of this leading up to the market’s favorite month of the year, September. The state of the state on the Dow has a few small hits where the square root is 160.289 at 89 days while the range to the low was 3272 and this high is a 72% retracement. This can be overcome.
What to make of this move off the high? The calculation is much better in the Nasdaq than it is in the ES so we have the same prospects for divergence and rotation we’ve had all along. Last week I showed you how the lows in the NQ kicked in post-Facebook. Bullish readings worked well through this rally phase until last Thursday when the bearish readings started to work for the first time in 2 weeks. Right now, it’s a mixed bag. That gets me to the next topic. If you’ve noticed markets have been choppy since late July, it's not your imagination. It’s been Mercury retrograde and it finally ends Friday night.
Finally, you may have noticed the EUR-USD has been crushed while the Greenback has been going through the roof. Today these trends have stalled and what could be happening is an intermediate degree golden spiral time window at 127 days. It hasn’t helped precious metals which broke lower this morning.
As we hit the middle of August, it becomes vacation paint drying season until the end of the month. But that doesn’t mean you should be complacent just because the market is. Take any issue, it has the potential to blow up tomorrow, a month or six months from tomorrow. We are in a season of the non-black swan black swan. With each passing week, the issues we’ve observed have a greater chance of impacting the market. I’m not a pessimist but sooner or later Murphy’s Law has a way of catching up to us. Then again, as I look at this morning’s chart there is something to be said for peace through strength.