Anyone who has ever taken economics 101 has learned tariffs generally leads to a trade war, which can be a disaster for an economy. Donald Trump says it will work out for us. Like many others including the stock market, I have my doubts. The bottom line as far as trade deals and geopolitical situations are concerned, we didn’t get into this position overnight and this President has had to deal with huge trade deficits. I’m not sure this is the best approach.
Markets had good calculations for a low on last Thursday’s close. You’ll recall last week I thought many charts had a good chance to go higher based on the fact the Dow refused to jump off the ledge when it had the chance the prior week. They did end up higher initially and important FAANG stocks like Apple (AAPL) and Amazon (AMZN) ended up with new highs above January. The Nasdaq came very close, but the others did not. So, I am getting the divergences I’ve been looking for since the early February bottom. What concerns me here is the fact Thursday night’s calculations did not hold. Since we have new highs, there are also new fresh lows in names like AZN, MRK in the pharma arena and the HGX as a whole. Several housing stocks are wrestling with lows but KBH took it out and it's not close.
How is it we could have stocks setting new highs and lows at the same time? It’s very strange and not conducive for a sustained rally condition. What’s up next for financial markets? Since it is suddenly March, we are only a couple of weeks away from the Gann master timing window for the year at the seasonal change point. Most areas are going to change direction near the seasonal change point. Additionally, it will be Powell’s first major Fed meeting. This time it falls right on the seasonal change point. Powell is talking about several rate hikes for this year for a market that is already queasy about higher rates.
There has been much interest in these quarters about crude oil prices. You will recall we looked at the longer-term chart about a month ago and while I thought it could take the hit, the recent high did not line up as well as it could’ve for a longer-term high. From the June 21st low (seasonal change point), the longer-term oil chart has a high of 66.66 but found a low at 165 days in early February. That means the same number is vibrating at the high and low and the implication is for a confused or "less than" conviction in the price action. That’s what we are getting, and part of the problem is the overall top isn’t as good as it could be. Taking this one step further, at this point the longer-term chart is down a range of 8.59 and on the 180min chart rolled over at 86 bars. So, the next stand for the oil market will be at this recent secondary high from last week.
What can we expect from financial markets this month? I don’t think 2018 is going to be the gift that keeps on giving like last year. That means it will require all your skills and talents to navigate financial markets this year. Quite frankly, 2017 was a year where many mistook the bull for skill just like they did in 1999 and 2006. Its amazing to me so many could get so complacent for the third time in less than a generation only a few years removed from the terrible financial crisis. But that is exactly what happened. The mass crowd psychology developed a case of amnesia and hasn’t learned. I don’t have a lot to add this week concerning the wheels of justice, but I will be pointing to the bigger 610-day window in July when that scandal could rise back to the surface. Is it possible we can see these divergences carry on another four months?
Right now, we have a market that should’ve bottomed on Thursday but didn’t. Instead, it responded to a weaker calculation on Friday. In the near term that feels better because markets are trying to get their sea legs right now, but I am concerned something bigger to the downside is not only developing but starting to play its hand.
What will traders be concerned about? Of course, the biggest theme for the month is going to be Powell and the Fed. Beyond that, the tariff war seems to have come out of left field. Right now, I don’t think the dust has settled as to who will be the winner or loser. After watching several of the talk shows over the weekend the left and right seem to have been able to massage the statistics to favor their view. Stock markets do not like tariffs or trade wars. Beyond that, one of the unseen consequences to the Florida shooting is the boycotting of the NRA. All I’m going to say here is this behavior will only divide the country further. Tell me how corporations taking offense over these political issues is good for business? I don’t care what side of the aisle you are on, there will be a cumulative effect to all the acrimony. How many of you think Parkland will be the ‘last’ shooting we’ll see this year? Tariffs, domestic violence, scandal in Washington, DC. How much can the market absorb? What happens if the situation in North Korea or the Middle East explodes? What we are dealing with now is a long fuse that everyone knows has been lit, but nobody knows where the termination point is. That’s what risk is all about. It could go off tomorrow or a year from tomorrow. It could also go off on day 610 in July.