Markets dodged another bullet as Irma was bad but not as bad as it could’ve been. That’s not to make light of the situation, it was a category 6 just the other day. But before any of you get excited Jesse Colombo @thebubblebubble tweeted a report from calculatedriskblog.com that Harvey could result in 300,000 new mortgage delinquencies. Briefly, they extrapolated post-Katrina delinquencies applied it to the Houston area which has twice as many mortgaged properties as the Katrina affected areas and now they carry nearly four times the unpaid principle balance. The net result would be 300,000 borrowers missing at least one payment and 160,000 becoming 90 or more days past due.
That doesn’t even consider the lost productivity to a state that just had a historical evacuation. So, the E-mini gapped up on Sunday night and followed through on Monday. After Tuesday markets settled down to tight trading the rest of the week with the Dow hugging the 50dma. Biotech had a good week while the Transports continued to recover. The area of concern suddenly became the BKX which broke below the 200dma for the first time since June 2016 and prior December 2015. That means we have a musical chairs rotational market but if the banks are going to lead to the downside, it’s not a good thing.
President Trump went across the aisle to take care of the debt ceiling, for the time being, they kicked the can down the road for another 3 months. A lot of people on the left and right seem to be very upset about this but market liked it which was the major theme of last week. Given the country just suffered through two of the worst storms in years, it seems to be a revolutionary act to expedite matters and get the help to where it’s needed as quickly as possible without the usual political wrangling. This is one less issue to be consumed about as we hit the middle of September.
One must wonder exactly what tax reform is going to look like given the Trump-Schumer-Pelosi team likely will try to work together again. Michael Goodwin of the NY Post writes it could be the beginning of a new type of rotating coalition where different players chime in on different issues. I think we understand why this is happening. Goodwin also says he’s following through on his reputation of being a disruptor of the status quo, this time his own party. Thank the GOP for not getting anything done to this point despite having majorities in both houses of Congress. Now we may have come full circle with markets waiting to see what will happen as everyone was originally promised taxes would be done by Labor Day.
Now that we have a slew of good news, precious metals hit a high on Friday and gapped down on Sunday night. I think this one has a chance finally. That has implications for the Greenback which already responded to the 163-hour low to a low window and extended on Sunday night. So far it's testing the last breakdown and hanging on. Early Monday morning it was higher and Gold was lower. Just when it looked like oil would keep going it reversed but had a very well-hidden reading which we don’t see every day.
Risk is still there, we still have the rotational market and it still possible to get a new high in the NDX. One way of explaining it is we have a market tied to geopolitical and other events and this is the calm between the storms even as we just had a storm. Markets are better today but here is the BKX looking up at its broken 200dma which is starting to roll over. I still suspect this condition to play out in the coming days.
It is with great sadness I have to tell you about the passing of Dawn Bolton-Smith last week. Those of you who have Breakthrough Strategies know she wrote the forward to both editions. She is one of a handful of great people who are responsible for helping me get started. She was also known as the iron lady of technical analysis in Australia. She was in poor health in recent years but the one thing that never wavered was her love of markets. For Gann aficionados, she was part of the old guard who still kept charts by hand. She implored me to do it but I could never do it because all I do with intraday charts, it’s impossible.
While we never want to see tragedy, these two storms did bring out the best in a lot of people. Politics was put to the side the past few days and hopefully, we can see the nation start to heal. At least for a few days, it has been reflected in the stock market.