Last week was one of the strangest weeks I can ever remember. First of all, the Gann seasonal master timing change point for the year hit Monday-Tuesday. I do have quite a few names for it, don’t I? The reality of the situation is Gann considered the March change of season the equivalent of New Year’s Day for financial markets.
He’s right about that, but if the prevailing meme does continue, Tuesday marked the beginning of a whole new season concerning sentiment. That was the day market participants decided they were no longer sure about the Trump agenda. At least that’s what the media said. It seems that was the day the market became interested in politics for the first time in a long time. It hit so fast, bulls didn’t even have a chance to think about what hit them.
I’m showing you the Transports but it represents many charts. There is usually an ebb and flow where those who get caught near the high attempt to get out on any spike when others attempt to pick a bottom, or bears, who are not so convicted try to prematurely cover. None of that happened and they all hit the exit button in the same sequence. That will happen when Investor’s Intelligence gets into the 60s even as last week it was in the high 50 handle.
Suddenly, the crowd was interested in the upcoming health care vote, which was supposed to be Thursday night and later changed to Friday. But I’ll get to that in a minute. On Wednesday the world learned of yet another terrorist attack, this time in front of the British Parliament. I can’t say markets reacted to that but after a big drop the attack was the kind of event where a market could find a contrarian bad news bottom. The headline was thick even as the VIX was not.
Yeah, it was a big one-day drop but as far as the Dow was concerned it was the 14th bar off the high. It was entirely feasible in a perverse market a day after the drop a terrorist attack could’ve been the ugly news low. But it was not. I didn’t think it would be although I did have to consider the possibility of it. The problem was I didn’t have a good calculation for the low. Long-time readers of this column know most of the lows we’ve seen come with decent to really good cycle or vibrational lows. So, let’s fast-forward to Friday where the Dow and SPX made lower lows. The perverse market hypothesis was nullified.
Let’s take a look at Friday, one of the strangest days I can ever remember. The day started off like a pancake and many probably thought the market was going to wait on the vote, which was postponed from Thursday night. See that big bar in the upper left hand corner? The YM dropped 49 points in one minute. That doesn’t happen every day. I turned on the television and it wasn’t too long before the report came out Ryan went to the White House. A few minutes later it was reported he went to the White House to tell the President he didn’t have the votes. I wondered if news was leaked to insiders who got the information a bit early on that 49-point drop. It was very suspicious.
Okay, in the bigger picture we are in a new developing downtrend as we are on the other side of the seasonal change point. The market sold off and once the news broke they killed the bill, the market was either buying or bears were covering. It appeared to be the classic “sell the rumor, buy the news” sequence. From that point the action morphed into a triangle as the crowd was left to ponder the implications of everything.
From the initial reaction it isn’t good. During this sequence some markets took out Tuesday/Wednesday support. The new low didn’t have the calculations for a bottom. Here’s where the next chart becomes relevant. This is a picture of the Trump rally since November in the Nasdaq. If you look close near the high you’ll see a couple of smaller lower tails, which allows the trend line to connect the dots and work. Tuesday’s action clearly is a trend break. Can the freight train recover? Sure it can, the top is not yet confirmed. But this time we are on the other side of an important cycle point and this is truly the best chance bears have had in quite some time.