We had another of those small degree time windows—161 days up from the early November low, which came to be known as the Trump rally. With time windows, we have issues as one never knows if it will create a low or a high. Most of the time it’s a high, but upon occasion, it will top early and create a low.
In the case of the Dow, it hit a small peak last Monday and started consolidating. I told my posse it had a chance to find a quick low on one of three days, Wednesday thru Friday. As it turned out, the market was higher on Wednesday and lower again on Thursday. So, did this window create a high or low? The answer is “yes.” Did it create a high? For tech, its highest point was Monday. Did it create a low? Yes, for the Dow the lowest point was Thursday. By Friday the Dow hit another new all-time high.
Not only that, but the Transports also hit a new high, which some would say is a confirmation and a confirmed breakout according to Dow Theory. But at the same time tech looks awful as it completely unwound last Wednesday’s good gains. Not only that, but the NDX is at the lowest level since June 9 which you will recall is the day Goldman Sachs certified the heavily weighted tech names were as safe as utility stocks or the bond market. When it comes to these events, I have the memory of an elephant.
Here’s the problem with this market. A day like last Wednesday, which looked so good and completely unwinds, can be very traumatic for bulls. They may very well not be able to recover that territory because it will take a certain amount of boldness to try it again. Think of the market as a small child and you know what happens when the finger touches the stove.
On the other hand, we have the Dow, which is doing just fine with its Dow Theory confirmation buy signal. I don’t want to pour cold water on it, but we must consider one key point. The Transports broke through on Monday, which was a half light volume session due to the holiday. How much weight should we give to a day like Monday? The market had a choice of going higher or lower, the Dow went higher so there’s that. But when the weight of the crowd gets back it can be retraced very easily.
Now we have a divergence working but it’s bigger than it was before. In the same week, we have different areas of the market hitting new highs and lows at the same time. That can’t be good. But the big cycles don’t hit until the end of August and we may have to deal with this kind of market while the thermometer remains high.
What we need to be concerned about the rest of this week and possibly well into July is the situation with healthcare. Congress put the whole debate on hold over the holiday. They clearly don’t have their act together and now the President is urging them to just repeal if they can’t come up with a solution. If they haven’t come up with a solution now with over seven years to think about it, they aren’t coming up with a solution this week either.
I believe the biggest issue facing Congress right now is not whether they come up with a decent health care bill, but whether they decide to roll up their sleeves to stay in session by canceling their August recess. Don’t forget they’ve told us no tax reform without health care going first. That makes David Stockman a prophet.