The vote on the new healthcare bill is scheduled for today in the House of Representatives. The outcome is no foregone conclusion as the republicans are not sure they have to votes to pass it. If it does not pass, conventional wisdom is that it will hurt the stock market as it could put the new president's agenda on hold a while longer, and because the market has rallied furiously on those proposed policies, it could easily use this as an excuse to sell off.
On the other hand, if the new bill passes we could see a relief rally, but there has been technical damage done to the charts and the question becomes whether a full on pullback or correction is just getting underway. Pullbacks and corrections are healthy for the market, but they are never fun to go through so we all have to decide how to play this mess... if there is in fact a mess to deal with.
One thing to keep in mind... During the prior pullback in early March, bonds and gold were also going down. Now those two safety plays are moving higher so yes, it is different this time.
The SPY (S&P 500 / C-fund) posted a small gain yesterday and created a nice reversal day. The gain certainly didn't make up for Tuesday's losses, and a little dip buying wasn't a surprise although the market had an excuse to continue to sell off yesterday if it wanted to. But you can see that the gains ran out of room at some potential resistance in the form of some old support lines.
The DWCPF (S-fund) came back from some bigger losses yesterday to push slightly into positive territory. The trouble technically, is that the old support line is now overhead and could act as resistance. It is below the 50-day EMA and you probably know that is has been lagging the C and I funds this year.
The Dow Transportation Index has been leading on the downside since peaking earlier this month. The decline in the market leader has been precipitous and perhaps it is due for a relief rally, but there has been a lot of technical damage done to this chart and it could be like trying to catch a falling knife.
The price of oil was down sharply early Wednesday but snapped back helping stocks recover. We have one of those dreaded "h" formations that could be a double bottom, but it is below the 200-day EMA and like stock charts, has endured some technical damage.
The EFA (I-fund) was fairly flat but is well off Tuesday's morning peak. Was that a top or is this pullback just a test of the rising support?
The AGG (Bonds / F-fund) was up again and to my surprise, that large gap near 108.60 was filled. Two weeks ago I would not have thought it could happen so quickly. The rally also opened another small gap near 108.30. I suspect things could get tougher here for bonds. If not, it could mean trouble for the stock market.
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