It was the famous economist John Maynard Keynes who said, “The market can remain irrational longer than you can remain solvent.”
This appears to be one of those times because it also looks like the rally is back on. So despite the best efforts by Gann and NASA we may very well head into the fall with a massive stock market bubble where the longer it goes the more dangerous it gets. I know this is a very inconvenient truth for some people but I’m not here to tell people what they want to hear, just to tell you what the risks are.
We’ve been through a time window season and the 3rd of 4 blood moons. One thing about the blood moons is certain; since they started last April 15 the world has become an incredibly dangerous place. Aside from that we will see the expiration of another seven-year cycle come September/October.
Technically, we’ve been watching the Transports as all good technicians are supposed to do. Last week at this time they threatened to break major support. They did not. The first half of April is also supposed to be the seasonally tough part of the month probably due to tax selling. So we may actually have one of those kinds of days this week. But after April 15, conditions tend to loosen up.
Transports were the best thing bears had going but it’s been up four straight days. Thursday was the day bears had the NQ on the ropes as they broke a key hourly trend line but within the close of that bar, they left a lower tail than the market has been up ever since. So the verdict appears to be in. Since November 2012 when the NASDAQ dropped 386 points in about 38 days the bears have whiffed every single time. The next biggest correction was a year ago this time when the market started dropping on the five-year anniversary of the 2009 bottom that looked like it could be the real deal until it got stopped stone cold on the day of the first blood moon. The first drop was 12% and the second was 9.7%.
Now having survived time window season the NASDAQ is setting itself up for a test of the all-time high which was really inevitable if you stop and think about it. Now that we’ve made it this far, odds probably favor a new all-time high.
So why is this so dangerous? You know the headlines, geopolitical risk is the highest it’s been since 1938 and I don’t say that lightly. For financial markets and the mood of the crowd the real story here is complacency. I’ve never seen the world in this much trouble with the complacency factor this extreme. To be sure, the VIX has been lower but it’s never been this low with the Middle East going up in flames. For the past 40 years every single one of us has heard about U.S. dependence on Middle East oil. That started with the oil spikes of the 1970s which really was a wakeup call. But now the situation in Yemen is already a disaster. What if the rebels really do get control of the Bab el-Mandeb Strait? Until four weeks ago, I never heard of it. But rebels are trying to set up shop on a hill overlooking it. That’s 4 million barrels a day.
Then we have Iran. I’ve seen reports where if Iranian leadership does not get their way by the end of June they are threatening to block the Strait of Hormuz. Multiple online sources say that is 17 million barrels a day. I’m not telling you this is going to happen. No, that’s not my point. My point is the crowd is focused on the Fed at a time when the risk the West has been concerned about for more than a generation has a realistic chance of happening.