The S&P futures are down -7.50 on Sunday night as a result of the executive order temporarily suspending entry into the U.S. from seven Muslim nations.
The executive order seemed normal enough. Candidate Trump had promised for months to shutdown immigration from certain Muslim countries with active terrorism, until applicants could be approved through an "extreme vetting" process. He announced the order this weekend and everything went downhill from there. This was a major black eye because of the way it was implemented. The administration is trying to fix the flaw in the orders and pus a positive spin on the problem.
However, large demonstrations all over the U.S. and all around the world are causing havoc and forcing world leaders to take a stand on the policy. Global futures are negative because of the uncertainty over the fate of Trump's administration.
I am sure he will get the kinks worked out of the process and every time they step on a land mine while learning how to govern, it makes them smarter. You learn by experience and this was definitely a learning experience. Loose lips sink ships and markets. It is best to consider the potential impact of an action before making it public.
The markets sprinted higher in a strong short squeeze on Tue/Wed and then went dormant, really dormant. The Dow traded in only a 31 point range after 10:AM on Friday. The various momentum indicators underlying the market indexes are all starting to fade. This does not mean the market is about to crash but it does mean buyers are losing some of their enthusiasm. I am sure there are plenty of long-term investors waiting for a decent dip to establish new positions. I have plenty I want to add in this newsletter if we can just get a decent dip.
Historically the markets are normally weak in February in post election years. Not correction weak just less than bullish. Given the big post election bounce we could see a little more weakness than normal.
However, other than the immigration disaster this weekend, the rest of the administration actions have been pro growth and it looks like the economy is headed in the right direction. This temporary immigration change and the news cycle it caused will also be temporary. Life will go on in the markets.
The S&P broke out to a new high but came to a dead stop at 2,300. That will be the new level to watch. There is strong support back at 2,260 and again at 2,250. It would take a major change in market sentiment to break below 2,250. While it is not probable, it is always possible.
The Dow surged over 20K in a monster short squeeze powered by earnings in several Dow stocks. Unfortunately, we cannot look forward to a repeat of that squeeze because the only opportunity for a big move will come from Apple on Tuesday. The other three Dow components, MRK, V and XOM, are rarely market movers. It can happen but the way the events are spread out makes it less of a chance.
For instance, Apple and Exxon report on Tuesday but Exxon reports before the open and Apple after the close. That means Exxon will be the only Dow reporter pushing the market on Tuesday. There are no Dow earnings on Wednesday but the market will be reacting to Apple's earnings the night before. The same is true with MRK and Visa on Thursday. Merck in the morning and Visa after the close. That limits the potential impact to the Dow.
The Dow futures are only down -50 points on Sunday evening so there is no rush to the exit. Support is well back at 19,730.
The Nasdaq Composite broke above long-term uptrend resistance and immediately stalled at 5,660. There was no selling but two days of trading failed to break through that level. The A/D line on the Nasdaq 100 is declining. That suggests the rally is being carried forward by fewer stocks. There have been some giant gains in the tech big caps so it may be time for a rest. With Amazon and Amgen both reporting after the bell on Thursday, the Friday open could be volatile for tech stocks. Short-term support is still 5,530.
The small cap Russell 2000 continues to lag the big caps. Since the small cap index typically leads the market that suggests the big cap rally could weaken. The Russell closed back below resistance at 1,375 but still in the recent range. A close under 1,350 would be a signal of a change in sentiment.
More than 100 S&P stocks report earnings this week. Symbols in purple are Dow stocks.
We have a very active economic calendar this week with a Fed meeting, payroll numbers and the ISM numbers plus a lot of filler reports. The FOMC and the payrolls are the two market movers. The Fed is likely to suggest they could hike rates in March but almost nobody expects a hike in February. The CME FedWatch Tool is showing only a 4% chance of a hike at this meeting but that rises to 27% for the March meeting.
The payroll numbers are expected to improve slightly over December but the weak retail sector could dent those estimates.
The Bank of Japan meets Monday night and that could be a drag on our markets on Tuesday depending on their decision.
I am not looking for a material market dip this week unless we get a completely unexpected headline out of Washington, Japan or the economic reports. The headline would have to be a whopper to really push the markets lower. There are no sellers and buyers are hitting the dips before you can even call it a dip. Something would have to blunt that buyer enthusiasm for a real drop to occur.
The Q4 earnings cycle continues to make it nearly impossible to add new plays. Nearly two-thirds of all stocks report over the next three weeks.
I should point out that although the S&P futures are down -7.50 tonight, they were down -6.50 last Sunday night. Those declines can be erased very quickly and there is a lot of darkness before the market opens on Monday.
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