Professor’s Comments November 29, 2017
Posted by OMS at November 29th, 2017
The markets exploded higher yesterday on news that the Senate Budget Committee approved the Republican tax bill by a 12-11 vote. The vote advances the tax plan toward a vote by the full chamber later this week. The Dow soared 256 points on the news, closing at 23,837. The NASDAQ and SPX finished 34 and 26 points higher, respectively. Volume on the NYSE was moderate, coming in at 96 percent of its 10-day average. There were 215 new highs and 66 new lows.
I found it interesting that the number of new lows on the NYSE actually rose during the rally. Very strange.
OK, so where are we now after yesterday’s big rally? Hmmm?
Several weeks ago, I projected that the Dow would likely top near the 23,600-23,700 level, based on the Ending Diagonal Pattern. I also projected that the SPX would likely top somewhere between 2,600-2,610. Yesterday, both indexes reached and exceeded these targets. The fact that these targets were exceeded on the day the tax bill was passed by the Senate Budget Committee was not surprising, as news like this sometimes produces a through over rally that can never be predicted with any degree of accuracy. Now the market will have to wait for the full vote on the floor of the Senate. If the bill doesn’t pass, look out below!
Once again, Senator John McCain has moved into the spotlight. After voting no on his party’s attempt to repeal the Affordable Care Act, the fate of a tax bill may now sit in his hands. Recently, Senator Mr. McCain has been tight-lipped about his views on the tax proposal, saying only that he is waiting to see the final plan before making a decision.
Senator McCain has a history of voting against tax cuts, including two that passed under George W. Bush. Back in 2001 and 2003, McCain said the tax cuts overwhelmingly favored the rich. So, unless he’s had a radical change of heart, I would expect him to have problems with the current tax bill which effectively does the same thing. McCain is also a deficit hawk and will probably find the fact that this tax cut adds about $1.5 trillion to the federal debt over the next 10 years. McCain is also not a fan of the current president, who disparaged his Navy service during the campaign. A no vote would be another way, like his no vote on repeal of Obamacare, to poke him the eye. So, for now, the markets appear to be overlooking a lot of McCain’s history, and taking the passage of the bill for granted. I’m not so sure.
The one thing I’m sure of is that I wouldn’t want to have a lot of my money riding on the vote of one Senator, especially with stocks at historically high levels and with patterns that suggest a top is near. So, please be careful now.
Tuesday’s Sector Report reached its strongest level in months. The Sector Ratio rose to 21-3 positive. The Strong Sector List was led by Service, Cap Equipment, Semis, Food Drug, and Technology. There were only 3 weak sectors; Utilities, Household Products and PharmaBio. Continue to watch for changes to the Sector Ratio. If it starts to turn negative, it will likely mean that the top is in.
I exited my ‘trial’ short position in BBT early yesterday for a small loss. The ‘Blade’ of the Hockey Stick Pattern in the banks continues to develop, but now the indicators have turned positive, so I’m just going to wait before doing anything else. Remember, it’s still only 29 November. We’re still in the Bullish Thanksgiving /end-of-month period. We haven’t moved into December yet.
That’s what I’m doing,
h
Market Signals for
11-29-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
VTI | POS |
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