This sequence started a week ago when the House of Representatives hinted they were coming with a new amendment to finally get health care through the sausage grinding process they call lawmaking. Everyone knows what kind of fight that was several weeks ago. If they don’t fix healthcare it’s going to be a stain against Paul Ryan, but that’s another story. The butterfly effect from the healthcare debate flows right to tax reform. Were you surprised the same day this story hit Mnuchin announced tax reform was on the agenda for the next week?
Next week turned out to be Wednesday when the administration came out with their proposal which they hope will become law this year. The market hopes so as well. This sequence may have been the classic buy the rumor and sell the news events. Shortly after Mnuchin and Gary Cohn presented to the country, markets started dropping. It didn’t drop much given markets don’t drop much and may never drop much ever again.
Seriously, ever since Wednesday the S&P 500 has been drifting lower, and the move to the recent high has a calculation to it. From the low on the 13th we can make a case for a first leg of 24 points and a bigger leg of 63 points. You don’t even need the calculator to see it’s a 2.62 ratio, which means we either have a high or a third wave high. It’s also back at the top of the channel lines. Since Wednesday they put in a bear belt on Friday.
This does not look like a reversal setting up yet. But what is potentially more promising is this very same bear belt (the big red bar) marks the high in the Nasdaq coming into the week. Remember we are in an interesting sequence where markets are in the middle of a calendar day window right near 618 days from the Aug. 24, 2015 low which the Dow owns.
Going around the horn, the SOX is off a new high, Transports off secondary high, Housing got hit and banking to a lesser extent. For once they were both going the same way. Getting back to Transports, airlines got hit especially hard when AAL deferred delivery of some new jets suggesting supply and demand is out of whack. It didn’t help the industry got another black eye when a Delta passenger was kicked off a plane for having to use the restroom. Here’s a case where a Milwaukee bound plane from Atlanta got stuck in traffic before takeoff. Someone had an emergency and was denied use of the restroom until the plane in the air. You can imagine what happened. According to reports, the plane went back to the terminal where every person had to get off and the one person was not allowed back on.
Back in the day I studied Deming and got a minor in Total Quality for customer service to go along with my MBA. I’m sure Deming would agree these are sad days for American business if he was observing the airline industry.
The XOI left an upper tail on Wednesday, lower tail on Thursday so that means oil is flat for the moment. Transports could be a problem, oil is still not well and by Friday was also locked in a tight range. The question here is whether what we saw on the SOX starts to spread.
Summing this up, there are a lot of issues on the table. There seems to always be one bigger issue markets get fixated on with several lesser ones. But this time I could make a case markets are looking at five things simultaneously. They are tax reform, good tech earnings, Trump’s 100 days, crummy GDP and last but not least the French election. Recall last week markets rallied to start the week because the globalists got excited over a Macron win. But the next day good tech earnings helped ignite another leg. Trump’s 100 days is likely an overall view tied to taxes but in retrospect the crowd wants to see what they are going to get for this rally that started the day after the election. Obviously, we have a very important election in a week, but we are also faced with a crummy first quarter GDP number at .7%.