President Trump's business councils were disbanded yesterday after several business leaders started to pull out. This gave the market some pause, but if you listened to the business news and didn't see the action, you would have thought that the market was crashing. Instead we saw an early 79-point gain in the Dow, turned into a 26-point gain by the close, with every major index closing in positive territory, and the VIX falling 2.5%.
Perhaps this will turn into something bigger as it get digested, but I don't know. The market and the high frequency trading systems are usually the first to react to news and the initial reaction here was relatively muted.
One red flag however is the bond market which is showing strength again and seems to be preparing for something. Another is the elevated ratio of new lows in the NYSE vs. new highs, while the indices are still near recent the highs. That's a bearish negative divergence, but it's actually been that way for months so lately it's been treated like the boy who cried wolf.
The SPY (S&P 500 / C-fund) gave up some early gains and closed with a small gain yesterday, and that kind of action usually rolls over into the following day, but it wasn't big enough for us to call it some kind of major reversal yet. If anything, it is still above the 50-day and it closed above the short-term descending resistance line for a 2nd straight day. The open gap is also a concern as they tend to get filled.
The DWCPF (small caps / S-fund) had a modest gain but also closed off its highs. A a little more concerning was the 3rd failure to push above the descending trading channel. There is an open gap both above and below the current levels, with the one below being much larger.
The Dow Transportation Index broke to the upside of the bear flag that we have been watching, but the negative reversal on Wednesday pushed it back into the flag making it a failed breakout. It closed above the 50-day EMA for a 3rd straight day but produced a negative reversal candle.
The EFA (EAFE Index / I-fund) was up nicely as the dollar fell after the fiasco in Washington and because the overseas markets had closed by the time the disbandment of the business councils was announced.
The dollar (UUP) dropped after the news out of Washington, but so far it has just neatly filled the open gap from earlier in the week.
The AGG (Bonds / F-fund) bounced back after the stock market reversed down and that big bull flag is interesting since it appears that the bond market is preparing for something negative in the stock market.
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