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Tuesday, July 18, 2017
Gridlock in Washington and the Impact on Equity Markets
It looks like everyone is tired and unable to do what they were elected to do.
If everyone's tired, how will this failure affect the progress of any other political items that President Trump has on his agenda?
And how will this affect equity markets for the remainder of the year? The SPX has looked pretty tired since March.
It's anyone's guess, I'd say...
Notwithstanding what I wrote on July 16th which describes new "BUY" signals in the SPX and the World Market Index, the last chart posted in that article (see Monthly chart of SPX below) shows that price is currently up against major resistance, formed by a long-term Fibonacci fanline (40%) and dating back to 1990, and is approaching an external Fibonacci retracement level of 200% at 2485 (taken from the highs of 2007 to the lows of 2009).
So, in the shorter term, we could see a "bull trap" occur prior to a decline in equity markets.
Combine this with today's announced failure of healthcare reform and the Fed's gradual removal of the low-rate punch bowl, and you can take your pick as to short-term market direction -- up, down, or sideways -- mixed signals in equity markets.
* P.S. July 24th...
However, inasmuch as the natural tendency of markets, in general, is to go up, I'd give slightly more weight to a continued advancement to the upside in today's politically uncertain environment...but, at a slower pace and with, perhaps, a bit more volatility than has been experienced, of late.
In this regard, keep a close watch on the SPX:VIX ratio, as a drop and hold below 250 will see volatility increase, and a drop and hold below 200 could see a panic selloff ensue in equities.