The Bears Control as Pro-Growth Policy Efforts Disappear

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Global equity markets were under noted pressure overnight off fears that the US political condition was poised for at least a partial meltdown. The European session started out with a UK unemployment rate reading that declined to a 42 year low but that news was offset by a decline in wage growth which economists noted was below the rate of inflation. While Target posted a beat on earnings today comp store sales declined and it could be difficult for any stock to trade its own fundamentals today in the face of the unfolding political feeding frenzy in Washington. Clearly accusations that the President crossed the line by asking the FBI Director to back off on its investigation of Mike Flynn has prompted both sides of the isle to attack and that means the pro-growth prospects are all but forgotten. The question is not if the coming action will be bullish or bearish, the question is will declines be modest or massive. Earnings announcements include Cisco Systems, L Brands and Synopsis after the close.

S&P 500: With a big range down washout an extension the path of least resistance is clearly down to start today. As hinted at in the introduction this morning the question today is not whether prices will fall but how far will they fall. While the political firestorm could eventually rest on he said/he said debate the president is likely to feel significant pressure from Democrats, Republicans and not surprisingly the entire press contingent in Washington. The market has already broken a 1 1/2 month old uptrend channel support line and it may be set to fill an old gap down at 2365.25 to 2358.25 basis the June E-mini S&P.

Other US Indexes: With the June mini Dow lagging behind the rest of the market over the last 2 1/2 months it could see less aggressive washout selling pressure in the days ahead. However given the potential broad problems for the White House it would appear highly unlikely that any pro-growth policy initiatives will be addressed for months and perhaps even quarters ahead. Initial downside targeting in the June mini Dow today is seen at 20,760 and then not until 20,702. With the June mini NASDAQ the leadership index over the last six months it should now become the leadership market on a downside swing. While the market has initially bounce from a range down probes overnight, the failure to hold above 5677.05 later today could still open up the floodgates for a slide all the way back down to 5600.00.

TODAY’S MARKET IDEAS: It will be very interesting to see if Trump can extract himself from a very precarious position and it also remains to be seen if stocks can avoid a moderately significant liquidation wave.

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