The Election Honeymoon Is Over
It appears the honeymoon has ended for Trump and the markets after sparking a major rally in both the US dollar and the stock market since the election result.
The US dollar after topping at the end of 2016 has now started in a new down trend after falling steadily in January. It's now at the same level reached just after the election results in Mid November. (See chart above)
Over the last 2 trading days the US stock market has fallen the most in 4 months, as a series of actions taken by president Trump over its immigration policy in the last few days has shocked the market and brought about uncertainty and fear. Ironically the actions taken by Trump was already raised in his election campaign promises.
Adding to further uncertainty and fear in the market Trump decided to fire the acting attorney general for not following on his executive order over his immigration ban on seven countries. (For further information you can click the headline below)
DOW Reverses Breakout Trade
The Dow Jones Industrial index made a breakout out of its tight trading channel last week after moving sideways for nearly a month. However the last 2 trading days losses has seen the index fall back within the channel as the 20,000 level support failed to hold.
For traders and investors interested in the Dow index, watch the index to see if the previous support line shown in the chart will hold. A close below support could easily see the Dow fall back to pre-election results levels around 18,600.
Nasdaq Still Bullish Despite Uncertainty
The Nasdaq composite has been on a steady uptrend with little hesitation / pullback in price since the election rally begun. As a consequence of the strong uptrend rally late in the year the Nasdaq has made multiple record highs in January 2017.
Even though the index has fallen the last 2 days the index continues to remain well within the uptrend as well its current support. Compared to the Dow index the Nasdaq is showing strong bullish technicals despite the minor pullback in price from Trump's recent actions.
Despite the relative strong performance of the Nasdaq Composite, a potential close below its current uptrend line could see the Nasdaq fall back to the 5,500 level in price. With the current uncertainty and fear that is currently gripping the markets its quite possible for a reversal to occur.
S&P 500 - Hanging On To Breakout
The S&P 500 has experienced a minor pullback so far this week and depending on how you look at it, is just above or just below its breakout level that it crossed over in last week's breakout trade.
With the last 2 trading days showing some buying support despite falling both trading days, indicates the S&P 500 is likely to respect new support level around 2,275 - 2,278 in the short term. On the flip side with recent above average volume on both down days for the index does not bode well for market sentiment as fear remains within the market.
Weak Economic Data Adding To Market Weakness
Last Friday the US released its first look at last quarter's GDP as well durable goods orders for last month. Both pieces of key economic data missed market expectations, with GDP coming in at 1.9% versus 2.1% expectation. Durable goods missed heavily coming in at -0.4% vs 2.7% expected.
Interestingly after the release of the key data the market barely responded initially. However after the unexpected immigration ban placed over the weekend by Trump's executive order and the firing of the acting Attorney General yesterday the market decided to react the recent deluge of negative news and shocks with the 2 day declines.
Market Bullish Exuberance Not Broadly Supported
Another key risk for the markets on top of the recent market uncertainties from Trump's actions, is the lack of bullishness among the majority of the stocks within the S&P 500. If you look at the chart below, the percentage of stocks above their 200 day moving average has diverged from the index back in September last year. This indicates the larger stocks within the S&P 500 are driving the recent strong performance as the remaining stocks under perform. A divergence this large will most likely result in a reversal in trend to coincide with the overall strength of the index.
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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.