Where Are You Joe Granville?

Among the "greatest" market forecasters in history is Joseph Granville! While his market calls in the Granville Market Letter were sometimes wrong, there is no doubt that Joe Granville was the greatest showman on Wall Street. He spoke with such incredible conviction at all times, even while many of his forecasts were sometimes costing his subscribers dearly. Joe's most famous call was his "sell everything" call in early January of 1981. And his most famous "non" call was his failure to issue a buy signal at the stock market bottom in August 1982. In my view, Joe Granville's reputation never recovered from that non-call of 1982. He remained bearish for many years after that despite a massive bull market that was straight up for five years until August 1987. 

Joe Granville died at the age of 90 in September 2013, but if he was alive today he would have probably issued his strongest stock market sell signal EVER at yesterday's close, Friday, June 9th, 2017.

In the 1970's and early 1980's, when Joe Granville was arguably the greatest stock market forecaster in history (with about a dozen perfect calls in a row), he was most famous for his "proprietary" on-balance volume momentum analytics. He often claimed that this "volume" research was the heart of his successful forecasting. However, I've always had my doubts about this claim, and I have always suspected that his real secret was just one single market indicator. Every one of his perfect calls in the 1970's and early 1980's had one common denominator: The Dow Jones Transportation Average failed to confirm a new reaction high or new reaction low in the Dow Jones Industrial Average. In my view, these so-called non-confirmations were the real triggers for every one of Joe Granville's greatest calls. In August, 1982, after about a dozen perfect calls in a row, the Dow Jones Industrial Average made a new reaction low, and it looked to me like the Dow Jones Transportation Average was NOT going to confirm, which would have then triggered a buy signal from the great Joe Granville (closing out his last sell signal from January 1981). However, a mysterious last minute "sell program" in the Dow Jones Transportation Average on the same day the Dow Jones Industrial Average posted its new reaction low established a "confirmation" of the bear market downtrend and Joe Granville then missed the key buy signal on one of the greatest stock market bottoms in history. I've often wondered about that mysterious last minute, late-day sell program in the transportation stocks on that fateful August day in 1982.

Fast forward to yesterday, June 9, 2017, when every "major" U.S. stock market index posted a record intra-day high in New York morning dealings. Even the troubling recent under-performance of the small cap stocks was cleared up, as the closely-watched Russell 2000 finally posted a record high.

Nothing to see here! Move along!!

With record highs confirmed in all the major stock market averages this past Friday, few on Wall Street will now have the Chutzpah to issue a sell signal or warn of a dangerous, long-lasting correction immediately ahead.

However, the under-appreciated Dow Jones Transportation Average on Friday failed to confirm the new high in the Dow Jones Industrial Average. And I am certain that if Joe Granville was alive today, he would now issue his greatest sell signal ever!

Bottom line: "Sell everything!"

Dow Jones Industrial Average Daily Chart (Record High)

Dow Jones Transportation Average Daily Chart (Non-Confirmation)

Will May 25th Mark The High In The S&P 500 Index For All of 2017?

Even the most steadfast bear has to be impressed with the U.S. stock market action since Election Day last November and especially over the last six trading days! Can anything stop this incredible bull market?

While it goes without saying that there will be a correction at one point (very soon), it's probably also safe to say that almost every bearish ETF trader has been run over several times this year ahead of today's record high close in both the Nasdaq Composite Index and the S&P 500 Index. 

Minor bearish technical non-confirmations were posted today in the NY Composite Index, Dow Jones Industrial Average, Dow Jones Transportation Average, and the Russell 2000 Index, which all failed to post all-time highs with the Nasdaq Composite and the S&P 500. However, only the under-performance in the Russell 2000 looks important in terms of forecasting a potential near-term top in the overall market. 

In the interest of full disclosure, I remain short in both the S&P 500 Index and the Russell 2000 Index. The under-performance of the Russell 2000 has helped to contain the losses in my managed accounts, but there's not much comfort there.

Any bears still willing to execute short positions might find some ammunition in the fact that meaningful downturns in the U.S. stock market started in late May of 2001 and late May of 2008. While seasonal research has never been my strong suit, I like this particular negative bias in terms of partial justification of my short positions. 

Of course, to really justify a short position here all you need to do is hang your hat on the recent comments from the U.S. Federal Reserve as published yesterday in the minutes that were released from the early May FOMC meeting. Buried in the tail end of a 12-page release was a potentially meaningful comment about "normalizing" the Fed's Balance Sheet by allowing maturing bonds to come due without the usual reinvestment. According to research from JP Morgan today, this normalization process could begin as early as September 2017. Could there be a "taper tantrum" in response to this potential tightening action by the Federal Reserve? Probably! If so, when will investors begin to sell stocks in earnest?

Crude oil prices were down about 5% today! Should stock investors view this extraordinary collapse as a potential signal that the so-called "reflation trade" is ending? Probably!