Market faces important turning point this week
The two big events I’m watching from last week are oil and the health care situation. Let’s start with oil which everyone knows has been in the tank. But the business media did something last week I’ve never seen before. Last week they told us oil went into a bear market. Never mind oil is 3+ years off the high depending on which high you look at. The high is over 100. Anyone who follows the business media knows they incorrectly define a bear market is when a market drops 20%. Not 19%, but 20%. We know it, we accept it from them. But last week they said oil went into a bear because it was down more than 20% from ‘this year’s high.’ That’s a new one.
What is the significance? They said it just as oil crossed over the 377-calendar day window from the high back on June 9, 2016 which fell right here at the seasonal change point. I’m looking at this from a sentiment perspective. Let’s put the media definition of a bear market aside, its wrong anyway and will always be wrong. A bear market or phase is defined by bearish behavior and I can teach on this for hours. The point is they either became the point of recognition something is wrong with oil or it’s a good contrary indicator and ready to turn. By Sunday night they were still defending Wednesday’s low. The early indication is we are getting the 377-day turn. First resistance is the spike high last leg to the low peak at $44.20. I’m looking for that test. As far as oil stocks are concerned they broke the Andrews line last week and this is the big inflection point. You can see given the pitchfork and the Fibonacci day count, this is an inflection point in more ways than one (see chart below). It should be an interesting week.
Then we have a very interesting situation in health care. Last week Trump told drug makers he wanted to lower prices by reducing regulations and streamlining the Federal Drug Administration (FDA) as opposed to what was earlier perceived as price controls. Drug names and biotech stocks viewed the news very favorably and took a leg up. On Wednesday, the NYSE Biotechnology Index (BTK) went parabolic. It will a lot more difficult to get the market to drop without participation from the biotech arena. For a while, the market was kept afloat by the heavily weight names like AAPL, AMZN, GOOGL and FB. There will be less pressure on them as long as biotech stays up.
But with bullish news, there is tough news as well. The Senate unveiled their version of health care which originally was viewed favorably but by the end of the week there were five Senators who publicly said they who were not able to support it. That doesn’t mean they won’t come around. As we speak, the Senate does not have the votes to pass it. Dare I bring up the name of David Stockman?