Saturday, June 3, 2017 6:33 PM EDT
Dipping back from rarefied air the market has probed, during weeks of a grind that finally made it by 'grinding' gradually then probing into the historic stratospheric levels we are now at, remains a prospect ahead of mid-month.
However, first we have to address the reactions from the FOMC meeting just ahead, which handily could see a reluctant rate hike given sloppy economic conditions (and mediocre jobs data not to mention slow GDP growth). What they may do is hike rates and then accompany that with a dovish statement; although if so, then the market may selloff; catch shorts yet again; and take it to new highs, providing S&P holds together until that time of the week.
Regardless we suspect this shuffles around a bit and then we have a June swoon; but with the technical cushion above key supports we've described, it should not be a catastrophic market breakdown, barring a 'black swan' or a slew of other unanticipated events.
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Bottom line, most significant for the market (working on overbought but no sell signal and no bearish macro view from us since Election Day, beyond noted short-term selling squalls which were not sustainable any more than most rallies) now is the FOMC and then the political chaos. For now we are expecting more rally extensions; which should not be chased.
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Daily action
Upward action has the technical 'aura' of being blow-off style capitulation; however, technical indicators do not 'yet' support the percpetion of this being over. That's why, even as Fibonacci and other measures clearly exceed historical norms for a few upside counts or cycles, I've contended it's 'not over until it's over', even though common sense and measure say it should be.
That logic has contributed to a lot of investors and hedge managers missing the move to the upside since the November Election, of playing catch-up; a bit of a (credit-market malaise enhanced) shuffle of funds into some action as opposed to none. I have argued the bond market is not dangerous for at least a few months, because any rate increases are and will be nominal if at all; and do not take the economy into an inflationary or business-restricting sort of mode at all.
Business is constricted because loan demand and general demand is slow; contrary to efforts by some pundits and Government to suggest stellar gains which really aren't occurring. So the bottom-line to this is that money has in fact been exiting the market (based on high net-worth withdrawals) for some time, and yet the averages move to-and-fro but manage to eke out higher highs over time.
Much now depends not so much on the 'realization' that 2020 becomes less an election and more a 'referendum' on the Climate Accord (notably today our UN Representative emphasized that President Trump believes there is a man-made effect on climate change, and is focused on the discriminatory aspects of the deal, not the idea of lower carbon emissions or clean water). Of course some will argue and we'll see if Trump deflects her statement on Saturday that should normally be helpful in clarifying his view, if he allows it.
Meanwhile the sellers here (and we agree about being somewhat defensive without actually shorting the market except when it spikes and we're close it seems to such a spot; and have tried to outline how it might flow in the week ahead) are engaged in what is called by some a FOMO stage. I disagree in part because of the withdrawals; so suspect it's leverage institutional-driven 'algo' activity that not only perpetuates this but may be its downfall later-on. (FOMO defined as 'Fear Of Missing Out' rally.)
The main video outlines the suspicions and political dominance that should overtake the Fed decision as a contributing factor (maybe a 'swan' or maybe not; you'd have to ask Jim Comey about that). And there is a crowd thinking that if it did bring Trump down (unlikely) you'd get Pence; and Republicans in that case wouldn't necessarily be bearish as it might imply he'd win on his own in 2020 and then you'd have not only longer control but even probable additional Supreme Court appointments over the ensuing years. That's why I wrote about what I termed 'be careful what you wish for' to 'obstructionists' who think they'd be better off politically if Trump were to simply quit all this.
It should be an interesting week ahead, especially Wednesday.
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