The question people are asking right now is whether a new bear market has started. At this point, it’s an irrelevant question. Don’t worry about a bear market. Just look at the situation in front of you, says Jeff Greenblatt, editor of The Fibonacci Forecaster Tuesday.
Last week I warned you it could be different. I also warned it’s time to lock in profits.
The bottom line to the whole affair is the Dow Jones Industrials (DJI) topped in its 610-day window to the August 2015 bottom. In the 19 years I’ve been doing cycle work I’ve only seen the market miss one time which was back in September/October where the cycles were much bigger. However, a case could be made they inverted and accelerated to the upside instead.
There were several warning signs which I covered in the past post.
As it turns out, Friday was a day I’ve been pointing to for a long time. It was finally the day the stock market woke up to the fact we live in a dangerous world. The FISA memo was released and as far as I can tell, it was only Stuart Varney from Fox Business who was willing to tie the memo to the drop in the pattern. It has hurt the nation.
As a stock market historian, I’ve looked at the market’s reaction to many kinds of events, from assassinations to scandals to world war.
The market doesn’t like any of it which is why I’ve been on the same page as Lord Rothschild comparing last year’s market to 1937.
Despite the bubble, risk has been incredibly high. People are now comparing this event to Watergate. I’m here to tell you the market sold off for weeks and months during the Watergate era and this is much worse.
For years I’ve been telling anyone willing to listen when the time window hits, the news event materializes, almost by magic.
The question people are asking right now is whether a new bear market has started. At this point, it’s an irrelevant question. In an attempt to answer that, the House Oversight Intelligence Committee has stated last Friday's memo is the tip of the iceberg. The revelations will continue to hurt the nation.
But we must put our cycle work in perspective. The Dow bottomed in August 2015, the rest of the market bottomed in February 2016. It’s roughly 5 months so we will be coming to another 610 window by the middle of the year.
We know the government moves at a snail’s pace. But we are in the thick of it right now. The next important window is today, at golden spiral 618 days for the Dow. What is relevant is to see whether and by how much we get the reaction at this window. Will it bounce and get back into its bull? Will it be a dead cat bounce? Will it even respond to this window? The answers will go a long way to telling us what we are dealing with.
The higher probability is there will be some reaction. Is it a new bear market? As traders we can become heroes or make money, but chances are we won’t do both. Aside from the fact, the news event reveals we are living in a dangerous time.
This is a very dangerous point on the chart because many who believe this is the start of a new bear are now imposing their will on the market. They could be right.
But this is a game of risk management, not risk taking. If you’ve watched the movie 21, the protagonist Ben who is the MIT genius said, “My non-linear math professor told me to always watch out for variable change.” Simply put, variable change is what is coming against you. What is coming against you can and will hurt you if you don’t know it.
Don’t worry about a bear market. Just look at the situation in front of you.
