What we are going through right now is likely a late stage bull
Another week, another failed attempt to go down. What happened this time? I almost don’t remember. First, the health care debate was going to be delayed due to Senator John McCain’s operation to remove a blood clot from his brain. We later found out McCain has an aggressive form of brain cancer, and that shocked the nation.
In any event, it evolved from a delay to the Senate didn’t have the votes. The market didn’t like that but it did not stay down. This time it did not make a full recovery. Transports stayed down all week while the Dow made a higher low from the prior week when it dropped based on Trump Jr.’s Russia scandal. Right here it looks like another small triangle. Since June 20, the Dow has taken on a very complex pattern which resembles a triangle on a triangle. Some would call it a base on a base.
But some of the other leading tech names like FB, NFLX and AMZN continued to new highs. Some look at the FANG stocks as the real indicators. I prefer to look at AAPL instead because NFLX is only 1% of the NDX while AAPL is 11%. But Netflix must be looked upon as some cultural icon where consumers are still spending disposable income. I have news for you. The day people quit seeing movies at home no matter what the delivery system is we are all in deep trouble.
Aside from these market gyrations, the most important outcome last week likely was oil which broke down from its trend line on Friday. Crude oil peaked at 185 hours after a low of $43.84 per barrel. It is a good square out and the drop happened so quickly it already found a low and ready to do some upward testing. There are huge implications to losing oil this time. I’m assuming a lot, there is a lot of technical damage to this chart. But if the market loses oil stocks it’s an important sector that will help create a rotation/divergence to the FANG discussion above. In recent years oil has also been viewed as somewhat of an advance indicator to the economy.
What about healthcare and Congress? Right now, the word is they’ll stick around for two weeks to see if they can get anything going. Isn’t that encouraging. Just so you know, if they didn’t intend to stay, Friday would be their last day. I’ve heard political commentators say this is the worst case of the "do nothing" Congress in 165 years. Think about it, during Obama’s last term Congressional ‘do nothing’ tendencies were compared to their cousins from 1947-48. So, they are getting better at what they do. We can joke about it, but this is starting to get very serious. Last week Paul Ryan said they will be writing the tax bill in the fall. In the fall!
They haven’t even gotten around to it yet. The stock market baked a tax cut into the cake months ago! They are starting to get to the point if they don’t start following through on promises the other side of the aisle could retake at least the Senate next year. For those of you watching this closely, if the Democrats were to take the House, I’d say the odds are very high they’d push for impeachment. What does that have to do with us? Everything.
Impeachment would be a disaster for the stock market. Let’s look at one scenario and I’m not predicting this will happen. You’ll recall the stock market started topping in the summer of 2007. It didn’t start bottoming until November 2008. The Dow topped in January 2000 and everything bottomed October 2002, well over two years. If bigger cycles fire off at the 30th anniversary of the 1987 crash and something similar were to happen, markets wouldn’t bottom until 2019 and by then what people have in the back of their minds could become reality.
As I said, this is not a prediction but when you at Congress you must be very disheartened by the dysfunction. I’ve quoted David Stockman numerous times in this space. Nothing that has materialized to this point suggests he is wrong! There is nobody in America who understands what is required to pull off a tax cut than him and he was operating under a normal partisan type Congress.