So, what about that wedge in the Nasdaq I was looking at last week? The upward momentum stalled 61 days from the prior high. Oddly enough, it was tech stocks that stalled last week while McDonald's had that big day on Thursday which drove the Dow. MCD is rated seventh in the Dow in terms of its weighting. A lot of other Dow names started well but backed off. On the same day all the FAANGs got hit. The SOX got hit while oil stocks were strong.
Even financials under the BKX recovered as the situation stabilized in Italy. Right now, markets could be in wait and see mode as history is made this week in Singapore. History of another kind may have been made over the weekend with the G-7 meeting. I’m not going to weigh in on the controversies of trade wars, press conferences and mean tweets. Upon deeper observation, I’ve discussed what cycle experts call the fourth turning, which has happened every 70-80 years since the American Revolution. What we are witnessing here is a dissolution of old alliances and a transition to something new. The architecture set up in the post-World War II era is crumbling. The Europeans have threatened to come up with an agreement without the United States. The new Prime Minister of Italy Conte tweeted that he agreed. We may also be front seat observers to a new alignment this week as Trump attempts to bring Kim Jong Un into the world of nations.
Also on tap is the big Fed meeting as well as the European Central Bank meeting a day later. All of this comes a week before the all-important seasonal change point where markets tend to change direction. This year the calendar falls a little different as the Fed meeting is usually the same week as the seasonal change point. What does that mean to us? We could see added choppiness given the cycles and the degree of important events materializing at the same time.
In a major new development, the Transports broke through the congestion zone of the past two weeks to the upside. Since there was a key balance line sitting in that zone, whichever way the worm turned was going to be important. I told you if they broke below congestion it was over for the Transports. But the market bounced back and now it appears we can get a leg up at least through the week and the door is open for a Transport rally into the seasonal change point next week. Next week is a long time from now. My indicators suggest the Transports can stay on the current path for another 5 trading days. Even housing broke out of its congestion to the upside. All this is happening while the bond market stays flat. Prices are no longer going up providing interest rate relief in the near term, but at least they aren’t going down.
Crude oil has remained flat around its low after a decent amount of technical damage on the recent downtrend. Oil stocks have outperformed and if you are an oil bull, its always better to see the stock lead the commodity.
Gold is also in a holding pattern after a decent low and pinballing inside tight trend lines.
But the most important news item of the week might not have been Italy, G7 or even North Korea. The Miss America beauty pageant announced it was eliminating the swimsuit competition and it was no longer a "beauty pageant." Are you familiar with the "hemline indicator?" This was first observed by University of Pennsylvania economist George Taylor in 1926. Prechter’s Socionomics correctly points out "hemline indicator" methodology says women’s hemlines rise with the stock market. If a hemline is an indication of an expanding or contracting social mood, what are we to make of America’s most popular beauty pageant completely changing its mission? This is next level stuff.
A WWD.com article from Feb. 7, 2018, also projects the fall collection in fashion has lower hemlines projected. I’ve heard experts and those with ‘animal spirits’ suggest the swimsuit competition will return within three years or the Miss America pageant will be gone within five years. That may be the case but keep in mind it’s the rising or sinking social mood that will be driving the bus. What is the takeaway for those of us who observe, analyze, invest and trade these markets? This is an indication of a contractionary social mood and should lead to a be bear phase or a complete bear market. This is not a "today" indicator but something to keep in the back of your mind as time goes by.
For our part, we’ll be keeping close tabs on the next 610-day window coming up in July. The first 610-day window to the August 2015 low already fired off in January. There is a very good chance we’ll see another reaction in July. With the NDX and Russell 2000 at new highs and the Dow barely beyond the middle of the range, there is a divergent market for certain. This is an indication of a topping process but this one is a very long process. For now, it’s not going to hurt that sectors like transportation and housing are catching second winds. That’s the good news.
With that, I leave a word of caution. There could be an important turn by the middle of next week. Not all the market could turn, it might turn out to be a narrowing of the advance. We could see something top by next week which we will only recognize in hindsight. The turn window in July? Let’s take this one step at a time.