Perception, Persuasion, Repetition and Opportunity

The amount of negative press coverage emanating from Washington in relation to President Trump since his election last November has been relentless and, at times, apoplectic. This is simply my unbiased observation, as I do not condone or condemn any of it.

So far, the equity markets have ignored the rants from the media and political opponents. The SPX is hovering at all-time highs, as shown on the following Monthly chart, and has gained 12.2% since the election, as shown on the percentages-gained graph below of the Major Indices.

Monthly SPX chart

Percentages-gained graph of U.S. Major Indices

On the face of it, it appears that the perception of equity markets, in general, is that it's "business as usual," regardless of all the roller-coaster (almost) daily "anonymously-sourced political revelations" (which may, or may not, have been fact-based truths and which have, so far, been perceived to be fairly minor in the grand scheme of things).

However, at the point when "minor" issues morph into "major issues" and are backed up by repetition and persuasion with the presentation of credible facts, you may, finally, see a major dent made in bullish market sentiment.

Until then, these "whiffs" of potential scandals don't seem to present enough of a major barrier to continued support for equities, and the "buy-the-dip" opportunists will likely continue to take advantage of the current tumultuous political environment.

China Bounce or Catastrophic Drop Coming?

Further to my post of May 7, the following Daily comparison and ratio charts of China's Shanghai Index (SSEC) and Australia's Composite Index (AORD) show that SSEC now sits at long-term major support (in both instances), once again, and is vulnerable to further weakness in comparison with AORD.

We'll see if the Shanghai Index can muster a bounce here and gain any kind of sustainable strength and momentum to support an eventual breakout to higher prices in the Australian Index, or whether a plunge here produces a follow-on drop in AORD.

Failure at current levels could produce a catastrophic and swift drop for China down to the lows produced in 2014.

Daily Comparison chart of SSEC and AORD

Daily Ratio chart of SSEC and AORD

Aussie Dollar Hinting at Further Weakness for China & Australia

For many years, the charts have shown that, as China's Shanghai Index (SSEC) goes, so goes Australia's Composite Index (AORD), as shown on the multi-year comparison graph below.

However, a closer look at the following year-to-date comparison graph reveals that SSEC's attempts to continue to advance fizzled in mid-April and is now flat for the year, while AORD remains a bit more elevated.

A look at the following Monthly chart of SSEC shows that price remains below significant major price and Fibonacci resistance at 3250, while AORD is also facing major price and Fibonacci resistance from 6000 to 6050, as shown on the next Monthly chart.

A look at the following year-to-date comparison graph shows that the Aussie Dollar has been steadily declining since March 21...perhaps forecasting weakness that eventually followed in SSEC and a halt to further advancement of AORD.

As I mentioned in my post of March 30, we'll see if continued weakness in SSEC, AORD, and the Aussie Dollar have any negative influence on the World Market Index, or U.S. equities.

So far, the World Market Index remains unaffected, as it has reached a new high for the year, as shown on the following Daily chart, while the SPX:VIX ratio hovers just below its new all-time high (set on May 1), as shown on the Daily ratio chart below.

It may take something rather significant to induce any kind of major selling of Chinese and Australian assets and currency, and before it has any major impact on the the U.S. and world market, as a whole.

However, these are charts worth monitoring for the coming days and weeks, inasmuch as they have tremendous overhead resistance to overcome and will need fresh incentive/stimulus to achieve any meaningful and sustainable breakthrough.

Biotech Poised for an Upside Breakout

It looks like someone likes the Biotech ETF this year, as demonstrated by the percentages gained on IBB plus the 9 Major Sectors, as shown on the following Year-to-date graph.

And with IBB poised for an upside breakout above major resistance, it's one to watch, as shown on the following IBB + Major Sector charts.

Lastly, let's see if IBB can begin to outperform the Nasdaq 100 Index (NDX), as price now sits at major support on this IBB:NDX ratio chart. In that case, watch for the RSI to rise and hold above the 50 level and for price to break and hold above the 50-day moving average.

Nasdaq 100 Index vs. Volatility: Be Wary of a Blow-off Drop

While the Nasdaq 100 Index (NDX) is busy making new all-time highs, so is the NDX:VXN ratio (VXN is the Nasdaq 100 Volatility Index), as shown on the following two Monthly charts.

What is different about these two, is that the NDX:VXN ratio has run up against major resistance (the top of its long-term uptrending channel, while the NDX has a long way to go before it does the same.

With reference to the ratio chart, a drop and hold below the 460 level (127.2% external Fibonacci retracement level) could forecast a drop down to, potentially, major support at 380 (100% Fib retracement level plus bottom of long-term channel) on this chart, or lower.

However, inasmuch as the Momentum indicator has reached a new all-time high, such a scenario may be doubtful in the near term...but could be signs of an imminent parabolic spike in NDX, followed by a blow-off drop coming sometime in the not-too-distant future.

I still think that if the markets sense that Congress is not going to deliver on any meaningful tax reform and economic stimulus packages this year, or even into next year, while the Fed is busy raising interest rates, they will lose patience and transfer funds from equities into bonds, and, possibly, into Gold, particularly if retail sales, new jobs, and higher wages don't pick up.

But, as long as the Fed has the market's back, I think any blow-off drop may be wishful thinking for some, and could end up being a short-seller's nightmare, if it doesn't materialize.

And, as I've mentioned here and here recently, Bonds, Technology, and volatility are key to the success of any new (sustainable) bull market in equities, in general, that may seem to be evolving, in my opinion.

Record High for SPX:VIX Ratio

Today (April 27) marked another milestone as the SPX:VIX ratio hit an all-time high, along with a record high on the Momentum indicator, as shown on the following Monthly ratio chart.

We'll see if that continues if Congress fails to take over the reigns from the Fed (who are now tightening monetary policy) and move forward with President Trump's fiscal policies to stimulate and strengthen the economy and labour market (from which they've abdicated their responsibilities and simply left up to the Fed to handle since the 2008/09 financial crisis).

I'm not convinced that will happen any time soon, since all we've seen from Congress, so far, is obstructionism, complete resistance, slow-walking and failure to responsibly represent America's interests, as a whole, as well as witnessing, what seems to be, unabashed and an unprecedented amount of hate speech...not a great image for the country to project as a supposed "leader of the free world."

It's Time For U.S. Politicians To Step Up

As the U.S. Fed begins to reverse course on supporting low interest rates, in accordance with their mandate given to them by Congress after the 2008/2009 financial crisis, it's time for politicians to, seriously, take over the heavy lifting to stimulate and strengthen the economy by enacting the appropriate fiscal policies.

With Republicans finally controlling the House, Senate and White House, there aren't any justifiable excuses to prevent them from doing their job and fulfilling those responsibilities. As I mentioned in my post of March 25, 3 Trillion Dollars (and more) are, otherwise, at risk in the financial markets.

Strong Momentum Supports Nasdaq's Break Above 6000

Not only did the Nasdaq Composite make a new all-time high as it exceeded 6000 by mid-day today (Tuesday, April 25), but it did so on record-high momentum, as shown on the following Monthly chart.

As I mentioned in my post of April 21, I believe that the Technology sector (NDX) holds the key to support a new bull equity market, which I discussed on April 24.

As such, you can see, from the Year-to-date percentage-increased comparison chart of the Major Indices below, that Technology continues to lead the way.

Any further advance of the Nasdaq Composite Index should be accompanied by higher momentum to confirm strong and convincing commitment in this market.

As an aside, I'd like to see the RSI on the SPX:VIX ratio make a new swing high (as shown on the following Daily ratio chart), on any further advance in price, notwithstanding today's (even higher than yesterday's) new all-time price high, to confirm any breakout to new highs (above 2400.98) on the SPX.

Low Volatility is Crucial for SPX Breakout

Even though the S&P 500 Index (SPX) did not reach a new all-time high today (Monday), the SPX:VIX ratio did, as shown on the following two Daily charts.

Keep an eye on the ratio, since an RSI above 50 and upside crossovers on the MACD and PMO indicators are signalling that a new bull market is shaping up for the SPX. Such a breakout would need to be confirmed by a bullish crossover on the PMO, with the crossover maintained on the MACD and the 50 level held on the RSI on the SPX.

Remember Obama's (Secret from his Congress) Iran Deal?...

(Obama wishes to "counsel" young people on their beliefs and a life of public service in his new "life-after-presidency" role)...

EUR:USD in Battle to Redefine Resistance as Support

As can be seen from the following Monthly chart of the EUR:USD Forex pair, after today's (April 23) first round of the French Presidential election, price is currently in a battle to regain a foothold above major resistance at 1.09.

A break and hold above this level could see a further push to the next major hurdle around 1.15. At the moment, the Momentum indicator is still below zero...watch for a confirming break and hold above that level on such an upward push. Otherwise, failure to break above 1.09 with conviction could see a retest of 1.03, or lower.

We may not see a clear path forward until the runoff election, which is to be held between Marine Le Pen and Emmanuel Macron in France on May 7.

Tech Sector Holds The Key

As of mid-day on Friday (April 21), and during the past couple of range-bound months, the Technology sector is outperforming the large-cap and small-cap stocks, as shown on the following charts.

It's still sitting above both its 20 and 50 day moving averages, while the Dow 30, S&P 500, S&P 100, Nasdaq 100, Nasdaq Composite and Russell 2000 Indices are below their 50 MA, with bearish 20 and 50 MA crossovers.

I'd watch for any signs of major weakness developing in Tech as a potential precursor to any significant drop in equities, in general. Otherwise, we could see a continued non-directional bias in the markets for some time.

10 & 30 Year Bonds Versus Equities

As can be seen from the following long-term view of 10 and 30 year bonds (monthly charts), each is facing an imminent decision...whether to break fairly substantial major support at their current levels and, potentially, fall to levels not seen since the 2008/09 financial crisis, or resume their flight-to-safety bounce to retest prior highs.

Further to my comments of March 25, it's my opinion that if market players catch even a whiff of resistance by the majority of Congress to support and advance President Trump's ambitious agenda, particularly as it relates to tax and regulation reform, infrastructure spending and national security, in a timely manner (i.e. by August or sooner) (not to mention a potential government shutdown after April 28), we'll see money flow flood into bonds and out of equities.

For example, watch for a break and hold above the 50 day moving average and near-term resistance at 0.065 on the following daily ratio chart of 30 Year bonds vs. SPX.

In the meantime, it's difficult to ascertain what will move equity markets one way or the other, as they're mired in a consolidation format after having made 3 Trillion dollar gains in four months (from the November 2016 election), as opposed to what would normally take about a year to achieve (as I had forecast for 2017 in my post of December 1, 2016).

Perhaps, with little major overhead price resistance, equities will form a new leg up, slowly and choppily, until such negative political alarm bells begin to ring. However, we may get an advance warning with bond money flow, as I've outlined above.

It's What Makes The World Go Round

Since I have nothing further to add from my posts of March 25 and 30 regarding stalled markets, I'll, instead, post this gem from this week's "smile file"...