Stocks essentially move on earnings and fundamental expectations. US stock indices rose sharply into July and early August as forecasted in June due to earnings surprises. Over the past week prices have retreated sharply on major news events. When North Korea threatened to Nuke Guam stocks plunged last week. When they were scared into removing the threat, stocks quickly reversed back towards record highs. Then another amazing series of news events evolved from the Charlottesville racial violence. Trump’s articulating blunders, as perceived by even his allies, led to a major exodus of business leaders from his elite economic advisory councils. This loss along with rumors of well respected Democrat Investment Banker Gary Cohn’s possible departure from Trump tipped the markets back into panic mode.
Short term sentiment exhibited by traders buying excessive put options has indicated caution is already rampant and a limiting factor in any price correction beyond 5%. The current decline is still under 3% intraday.
The compilation of indicators in the CNN Money Fear and Greed Index is also already moving solidly into oversold territory with today’s (8/18/17) selloff. We pointed out last week that the likely short term target is near the 2400 area basis the S&P.
The Exec Spec time and price window for a 2017 Top was laid out in detail back in June and thus far has followed the script (chart below). While there is potential for Trump’s oratorical gaffes to continue to snowball, now that most of his conservatives and inner circle business leaders have abandoned him over his recent Charlottesville comments, technically the market isn’t primed for a major correction of 5 to 10+% — yet.
With an inflection point arriving early next week there is potential for “this wave” of selling to stabilize very soon. (Note below where previous inflection points have been.)
This Bull market looks firmly in place longer term, especially as measured by economic metrics. However, a Lame Duck Presidency and lack of Corporate Tax and Infrastructure stimulus may eventually cause stocks to work into a longer term stagnation phase over the next year unless leadership returns to Washington DC soon.