We are coming to the next phase of the divergence. I woke up this morning, turned on the box and the first commentator I saw said we’ve started the next leg up in the bull market. Some of these people take it for granted the market is going up again. Has anyone noticed the Dow and SPX peaked in January? Does anyone care the Transports missed making a new high in June and now remain much closer to the bottom of the range as opposed to the top? The HGX made a new low for the cycle less than two weeks ago.
On the other side of the coin the Russell 2000 made a new high at the seasonal change point in June and could very well hit another new high this week. Tech is close to new highs while Apple (AAPL), Amazon (AMZN), Google (GOOGL), Facebook (FB) and Netflix (NFLX), otherwise known as the FAANGs stay in constant contention for new peaks.
We continue to have a split tape. The wild card remains oil which is off the high and now off the low. In terms of sentiment, the crowd continues to get indigestion over trade policies but always seems to shrug it off after a couple of days. Perhaps some people have read, “The Art of the Deal.” It’s likely to be a long and painful process, but does anyone really think Trump wants to upset the rally named after him?
Unfortunately for politicians, the stock market eventually decides to do whatever it wants to do. Traders learn this lesson every day. The 610th trading day from the February 2016 bottom comes next Monday, which means the window starts on Friday. The way it looks right now at least for the better half is they could be rallying into the end of the cycle. That’s good because as traders we seek clarity and there is nothing worse than a big-time window materializing when a pattern is in the middle of the range. We like them hot or cold, lukewarm is not good. That is likely to be the case for the Dow and SPX. However, if a cycle is completing it usually does so hard and if that’s the case, it could be a good rally week.
I also hear a lot of talk about a great economy. I’ve heard whispers that one Fed region believes GDP could come in as high as 4.9%. Thankfully there are some smart folks on television as another guest this morning issued similar concerns as he stated the market is only up 3.2% this year and it should be doing better than that. If you want an accurate picture of the economy, look no further than this nagging divergence. I’ve been talking about this cycle point for weeks. Does it have to fire off? Nothing is guaranteed but we’ve already seen its influence on the Dow top in January so odds favor a reaction in the next week.
Elsewhere, it is starting to look more and more like precious metals has bottomed. There is a very good reading at this low and today it finally made a left turn which means bears are starting to cover their shorts. Gold finally turned at 142 days off its December 2017 low and roughly 142 points down.
In case you didn’t notice, mining stocks bottomed nearly two weeks ago. What I find strange is even as Gold made that left turn, the Greenback also has a strong day working and this could be of a reaction to the news U.K. Foreign Secretary Boris Johnson resigned today. There is political chaos in England just as the American President will arrive later in the week for his first visit which isn’t even considered a “state” visit. What does this mean?
Nobody knows for sure but odds now increase the days of Theresa May are numbered. People who voted for Brexit will be pleased but probably not those running the EU. Closer to home, we have our own scandals to deal with. Disgraced former FBI agent Peter Strzok has been subpoenaed to appear before Congress this week. His attorney said he may not honor that subpoena. I’m not a lawyer but the greater the intrigue, the more it looks like these people have something to hide. Gold traders may have finally become rattled by the accumulation of crummy news. With gold responding it means we could be close to end of the euphoria era we’ve had the past couple of years.
If you are bullish on Gold, it’s been very frustrating because the pattern has violated one good reading after another in recent weeks. But this is the best reading we’ve had in this entire sequence. Taking this one step further, many of the bullish setups in recent years have flamed out which is reminiscent of the 1990s when some people started getting excited about gold. This is still a complex that topped seven years ago. Since it bottomed in December 2015, there has been disappointment, but if you look at a monthly chart, it looks like it could be building a base which is an important development if there is to be a launching point.
Finally, bonds bottomed almost two months ago and this is a good thing considering there was a decent calculation at the bottom and I did tell you an important bear market rally should materialize. This rally certainly has been ‘less than’ but if you consider it’s fighting against the stream this is exactly what we should expect.
What I find interesting about this period in the stock market is there has been rotation. Neither bulls or bears have been able to get the upper hand for more than a handful of days at a time. If it is an early developing bear, it's been very slow in development and we are nearly six months into it. That can’t be good because all the corrections we’ve had have been quick to hit and just as quick to end. Here we have a slow-motion pattern which may be taking lots of people by surprise. If we are forming a top it’s taken a long time to develop. It could only mean one thing. Once the bear does get hungry, he is likely to feed for an extended time. One step at a time, right? Let’s see how hard the bulls can push the envelope this week.