Trump Tax Plan Takes Center Stage: Weekly Market Forecast
The stock market continued to rally higher this week. The SP500 index moved up by 1/2% in the first two days. Wednesday during the European session (overnight) we started to see some downside pressure hit the order book, as the SP500 index struggled to break and hold above 2,364.
On Wednesday the Federal Open Market Committee (FOMC) released their meeting minutes. The minutes showed a hawkish Fed, which seemed ready and motivated to start hiking sooner than later. This put some selling pressure on the market, but each dip lower was bought into aggressively.
On Thursday equities rallied above the 2,364 level to sweep all the upside liquidity and get some traders long at the highs, then dropped sharply on the US open to wipe out all the fresh sell stops. This weakness lasted into Friday morning, but the late session algorithms that have showed up between 3pm and 4pm came out again. The market ramped higher into the close, to take the index up almost 20 points for the week.
Of all the equity markets, the Dow was the strongest by far. You can see that the past 5 sessions did not have a single tail on the lows, indicating that the buyers were firm on the bid side. Nasdaq saw the greatest weekly volatility, but managing to stage the most dramatic rally on Friday. By far the weakest market this past week was the Russell 2000 small cap index.
We can see that while equities have enjoyed a nice rally since breaking to new highs, the Russell 2000 is having a hard time staying excited. This is a very important correlation to watch going into the next few weeks.
Stock market breadth in the SP500 held near the weekly highs, but has not broken the overhead resistance. Once we get above 80% on the percentage of stocks above the 50 day MA (middle chart), we will be looking for short opportunities. The percentage of stocks above their 100 day MA is inching even closer to the 80%, with a reading of 78.54% currently. You can see the red shaded areas above showing where past reversals have happened. These red zones are caution on extreme optimism.
Gold prices rocketed higher this week, testing our upside target of $1,260. We are starting to look at opportunities to short gold and play the downside, as seasonality starts to peak into the end of February and the next few weeks turn ugly for the shiny metal. If you want to learn more about seasonality, read our article from this weekend – click here.
The Week Ahead – Trump Tax Plan and Federal Reserve Speakers take Center Stage
Donald Trump Tax Plan: When is he speaking this week?
Donald will be addressing the US Congress this Tuesday. The market widely expects to see hints and clues about the much touted Trump Tax Plan. Donald Trump has said it would be terrific, yuge, brilliant and more – but the details were never discussed in depth.
By Tuesday evening we will have some more information and the market will experience a lot of volatility, as traders and investors try to price in the commentary and details. So far, the risk appetite has been surging, as the retail investor is finally piling into the stock market, while the institutional side is selling their stake to lock profits. Essentially, the wealth transfer is already underway.
Federal Reserve Speakers – Grand Total of 9 this week!
Aside from the Trump Tax Plan, we will be hearing from a wide array of Federal Reserve speakers this week. The market will be listening very carefully, after shrugging off the hawkish meeting minutes of last week. Most all Federal Reserve speakers now see at least 2 rate hikes in 2017, with a strong potential of 3. The first interest rate hike by the Federal Reserve could even happen this March, which Janet Yellen has indicated is a “live meeting”.
We have included the full economic calendar for the week ahead, including bold text of who is speaking and when this week:
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