Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Did They Sell the News? Yes, Some Did.
05/03/2017 2:49 am EST
Fast markets mean high risk and for many, it might be a better idea to take it slow for the next couple of days, asserts Jeff Greenblatt in his weekly commentary. He’s the director of Lucas Wave International and editor of The Fibonacci Forecaster.
Recall nearly two weeks ago the House of Representatives leaked they were resurrecting the health care bill. The market cares about it to a degree but the real prize is tax reform. It’s no surprise Treasury Secretary Mnuchin announced that same day they would come out with a tax reform proposal which markets liked. True to his word last Wednesday (April 26) Steve Mnuchin came out with the tax proposal. Shortly thereafter, markets started drifting lower.
It’s a week later and the SPX and Dow are lower. Tech still made new highs. The BTK stayed up as did heavily weighted usual NASDAQ leaders like AAPL, GOOGL, AMZN and FB. The SOX peaked last Thursday. There is a divergence and part of the market backed off on the news.
Right now, it’s hard to say whether the House follows through on their optimistic view of two weeks ago concerning health care. It’s unknown if they have the votes to bring it to the floor.
The verdict is some of the market sold the news. They may have also sold the 610-18-day window off the August 2015 low. Thus far, it is all a mixed reaction.
Putting all that aside, there is an area of concern regardless of tax reform.
How many realize the HGX Philadelphia Housing Index peaked a week ago Monday? Housing is a concern and will be a concern going forward in a higher interest rate environment. It may also become an affordability issue if there isn’t significant health care reform to lower premiums and deductibles for the middle class. GDP came in weak at .7% but the Fed believes that is “transitory.” Many believe the first quarter numbers are seasonally low. We hope it will be true.
But if the people who make this country work don’t get relief this year, the housing sector could be the first one to get into trouble. The tax reform issue is already baked in the cake as far as markets are concerned since the day after the election. Housing is an important part of that rally.
Today’s chart is the HGX where you see a new high last week prior to the Mnuchin proposal and they’ve already penetrated the prior high and the intraday trend line. I wouldn’t call it real technical damage yet it could be in the process of a trend reversal.
Now that we have the Fed in the rear-view mirror world markets will focus on the French election. There are only two more trading days (May 4, 5). We know the stakes are very high with the same type of polarization as the US experienced last year. At this stage of the game anything is possible, which opens the door for an interruption of the normal flow of the market.
In other words, there is significant risk in the near term the result might not be what the markets hope for. Fast markets mean high risk and for many, it might be a better idea to take it slow for the next couple of days. If you are an intraday trader, it won’t affect you until Sunday night. Swing traders who enter Thursday or Friday likely have to deal with turbulence.
The calendar has turned to May and the market loses the favorable seasonal cycle. That doesn’t mean it must turn but odds increase it can for no specific reason.
Finally, FB earnings came out after the bell, earnings came up a little short at $1.04 compared to the estimate of $1.12. The initial reaction was mixed but was down a little over 1%. In a market supposedly priced to perfection, the fact earnings missed and they didn’t take it to the woodshed shows the market is not ready to drop for real just yet.
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