8-13-17 Market Commentary


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Market Breadth: With this past week’s market decline, our Bull/Bear Point and Figure Ratio at 0.72 fell from 1.15 last week, and is now in bearish territory. The total count of securities in bullish or bearish patterns increased 6% to 3108. The count of bearish stocks increased 32%, while the count of stocks in bullish patterns decreased 17%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now one week in bearish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) fell 180 points for the sixth decline in sixteen weeks. At a negative 95.87 points, it continues below the six tops above +100, and it continues above all four bottoms below -100 in the last 3 years. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in neither Accumulation nor Distribution mode with average daily volume lower than the prior week. In the last two weeks the NASDAQ had zero (0) Accumulation days and six (6) Distribution days. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week the NASDAQ ended in neither Accumulation nor Distribution mode on lower average daily volume.

Momentum: In a Woodie’s Up trend since Wednesday 7/19 close, the CCI(20) daily is now at -225.46, down from 13.91last week. The CCI(20) daily has 3 days below zero and is outside the +/-50 range for another ZLR (Zero Line Reject) Long entry signal.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend sixty-seven weeks ago, while the Daily CCI(20) began a Woodie’s up trend three weeks ago.
The CCI(20) weekly has fallen to +77.64, down from +109.37 last week. We await the return of the CCI(20) weekly to the +/-50 range for another CCI(20) ZLR weekly trade.
Industry Rotation the last two weeks: Two of the top five industries are  positive and all of the bottom five are negative. Summary: Some Tech and Gold & Silver on top; Some Tech and Oil Services on the bottom. Bullish: CompTech and Disk Drives have entered the top five. Oil Services leads the bottom five. Oil has left the top five.  Bearish: Computer Hardware has entered the bottom five. Brokers, KBW Bank, and S&P Retail have left the top five. Gold & Silver PHLX has re-entered the top five. 
Focus this week: From www.moneymetals.comIs the Yellen Fed Planning to Sabotage Trump’s Presidency?” The following are some key points.

  • The Federal Reserve can make or break a president. Monetary policy influences all financial markets as well as the cycles in the economy. No president wants to have to run for re-election when the stock market and economy are turning down.
  • On the campaign trail in 2016, Donald Trump complained that Fed chair Janet Yellen was trying to help Hillary Clinton by keeping rates near zero and pumping up the stock market with liquidity.
  • Later that month in the second presidential debate, he declared, “We are in a big, fat, ugly bubble. . . The only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down.”
  • The president has warmed up to Yellen’s Dow-friendly easy money policies. He even suggested he might reappoint her to the Federal Reserve in early 2018. Yellen is a liberal Democrat, appointed by President Obama. She understands what’s at stake in the upcoming elections. She understands that Democrats are in a state of political desperation right now.
  • President Trump now has the opportunity to re-shape the Fed. Three of the seven positions on the Federal Reserve Board remain vacant. Trump can fill them. More importantly, he can replace Yellen as Fed chair next year.
  • [President Trump] shouldn’t underestimate the risks of the bubble he identified in 2016 bursting in time for the elections in 2018.
  • In recent years, GOP reformers in Congress have pushed bills that would force the Fed to adhere to a rules-based formula for setting its target interest rate. That would help remove political conflicts of interest from policy decisions and make them less impactful on markets.
  • Right now, any major monetary reform efforts would be met with insurmountable resistance by the keepers of the center-left status quo in the U.S. Senate. Yes, despite Republicans having a nominal majority in the Senate, conservatives are in the minority. That became abundantly clear when a pair of liberal Republicans joined anti-Trump establishmentarian John McCain in voting to save Obamacare from being repealed.
  • It’s likely that none of Trump’s legislative priorities – from healthcare, to immigration, to taxes – will ever make it to his desk to become law. Unless conservative/libertarian-leaning Republicans hold onto the House and gain some Senate seats in 2018.
  • Democrats must defend 25 Senate seats in 2018, while Republicans only have to put 9 on the line. GOP strategists see an opportunity to expand their majority by knocking off vulnerable Democrat incumbents in Indiana, Missouri, Montana, North Dakota, and West Virginia – states that swung heavily for Trump in 2016.
  • The question is: Will the economic backdrop be favorable for Republicans to campaign on the Trump agenda? That remains to be seen.

    Given the stakes, Donald Trump’s hiring decisions at the Fed could make or break his presidency.

–Donald Pirl www.s2pmarketsignal.com

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