ELAM: What could go wrong?

Technical analysis consists of recognizing patterns on charts of stocks and bonds as well as their indexes. We are at or near a pattern completion for the stock market dating back to the low of Summer 1932 at Dow Industrials 41, not a typo. This January plus or minus three weeks is both a 2- and 4-year cycle high. The Dow Transports have not given a Dow Theory confirmation of the new high for Industrials as Transports are below the November 2021 peak. The same is true for small cap Russell 200 and S&P 600 Mid Cap. The NASD 100, NDX, the top tech stocks, are far outpacing the overall NASD index. A ratio of NDX to NASD is a near vertical line to the upside, or a parabolic curve. Such moves near always end in a big retracement.

A low is expected by April. April 19 has an interesting history of occurring numerous times during historic events so be mindful of that date. Such analysis cannot however predict any particular event which might cause a market sell-off. And in some cases, the cause of such an event remains a mystery. What were the exact causes of the sell-offs of 1929 and 1987, both in October. No one really knows.

We can list a few reasons to worry and here are a few:

  • North Korea’s Kim dismisses the idea of peace with South Korea.
  • China’s President Xi, with property values falling and developers missing payments on loans and bonds, eyes Taiwan as a way to draw attention away from domestic troubles.
  • U.S. credit card debt soars as money saved during COVID has been spent.
  • Unemployment is low but coffee houses and fast food chains close their lobbies due to lack of help, drive through only.
  • Two wars drag on in the Mid-East and Ukraine.
  • Student debt exceeds one trillion dollars as the interest rate rises.
  • The Axis of Evil, Iran, Russia, China spawns numerous proxy fighters to promote terrorism.
  • We have no idea who is coming across the Southern Border.
  • The fact that markets are at all-time highs buoyed by seven stocks is a warning not a celebration.
  • House sales slow due to higher rates.

Elsewhere, crude oil prices remain in the 70s. Team Biden seeks to freeze natural gas production as well as shipments of LNG overseas. LNG production makes for U.S. energy independence and reduces EU dependence on Russian energy. What on earth are Sullivan and Blinken thinking?

Any of these potentials could be a problem. And markets could sell off simply because social mood switched from buy to sell, stay tuned.