Don’t let what’s taking place with the Dow fool or frustrate you about the market. What’s happening with the Dow is known as “consolidation.”  As profits are digesting, forcing stocks lower, they are met by sideline cash buys dips. 

This action has created a trading channel that obviously sees resistance at 20,000, and now key support around 19,750.  If that support number fails, the Dow would be susceptible to 18,800.  I highly doubt this is going to happen.

Engine Purring Under the Hood

The internals of last Friday’s session suggests the market is doing better even as it stalls. Keep in mind that the bank stocks that almost single-handily carried the Dow Higher.  Actually, 60% of NYSE stocks finished higher, and 128 closed at new 52-week highs versus only 10 as new lows.

NYSE Market Breadth
Advancers	Decliners	New High	New Lows
60%	36%	128	10

And while we fret about the Dow and the now mythical 20,000 mark, the NASDAQ composite closed at an all-time high. That index saw 67% of names traded at the close in the plus column, and 213 stocks reached new 52-week highs.

NASDAQ Market Breadth
Advancers	Decliners	New High	New Lows
67%	29%	213	47

Let’s face it; the Dow Jones Industrial Average best represents the near-term Trump economy while the NASDAQ represents a transition economy for the next 100 years. This point was emphasized Friday, with Retail Sales reporting store sales decline at 0.6% month-to-month, more than 8% year-over-year.

Internet sales popped 1.3% month-to-month, and more than 13% from a year earlier.

Now, it’s back to the implications of consolidation and sideways trading markets. They can last for weeks or months like the struggles the Dow had upon clearing 18,000; for the most part, the index moved sideways from December 2014 until November of last year.  I don’t think we are going to see this pattern hold for two years this time. 

The inauguration is this week, and corporate earnings reports should pick up steam. 

From here on out, administration milestones and corporate guidance should provide the one-two punch to break out the Dow and see major indices rally higher.

Today’s Session

Equities will open under pressure in part to comments President- Elect Trump gave to the WSJ.  He warned about the strength of the US dollar pointing largely to China.  He also griped about GOP tax plans, especially the use of a border adjustment tax to offset trade disparities and make up for lost revenue from a dramatic corporate tax shift to perhaps 15% or even 20% (GOP plan). 

Certainly, the possibility of raising $1,000,000,000,000 over ten years might appeal to those still concerned with growing government debt, but the tax is gimmicky to say the least. 

I agree the dollar is too strong but most note that China has spent more than half a trillion dollars trying to keep the Yuan higher not lower.  Capital flight has become a serious problem for the nation that’s minting wealth only to watch it find ways to leave the country.

As for the US dollar, which actually stalled at the beginning of the year, there are numerous factors that determine its strength.   Right now, it’s important technically the Dollar Index (DXY) holds above 100.00

There is also a difference between the incoming administration and republicans over the pacing of repeal and replace with respect to Obamacare.   With three days to the inauguration, its clear Donald Trump and the GOP, while singing from the same hymn sheet, are doing it in different keys.

While the dollar has stumbled on remarks by Donald Trump, the Pound Sterling is soaring after a very strong press conference that attempted to allay fears of a disruptive British exit from the European Union.  Theresa May bragged about the racial and multicultural diversity of the United Kingdom while underscoring the –negative- economic impact of net migration.   She was firm on the fact Great Britain will not be a member of the single market or member of customs agreement.

By the same token, the majority of May’s comments centered on global trade, free markets and being good neighbors with Europe while seeking a larger footprint around the world.

 

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