Getting To “B”

There was some uncertainty ahead of the French election which kept the market in a tight range, but when the results came in, prices exploded upward, especially with practically everyone endorsing Macron, making Le Pen a sure-loser in the runoff. Nevertheless, with the cycle lows still well ahead, the pattern under construction is more likely to be a B-wave than the resumption of the uptrend to new highs which should follow the C-wave.  After the announcement of the “massive” tax reform plan on Wednesday (which turned out to be somewhat less than the rhetoric), the failure of health care plan 2.0 to get enough votes, the one-week-only extension of keeping the government open, and the disappointing GDP numbers, it’s no wonder that the rally fizzled by the end of the week. It is still possible to re-test the high before reversing but, at the very least, we should fill the gigantic gap on the SPX as wave C, before reaching for new highs. We must also contend with the jobs report next week. If it is another disappointment, it would be a perfect trigger to give back some territory, but the market is very likely to reverse before Friday.

While QQQ continues on its merry way into the stratosphere, there are signs that the DJIA is beginning to lag SPX. IWM filled its upper gap on Friday, and TRAN has filled both upper and lower.  Arguing for this to be the conclusion of a B-wave is not too much of a stretch. But we are still trading in a rising channel and must come out of it in the next couple of days before wave C reveals itself.

Analysis: (These Charts and subsequent ones courtesy of QCharts.com)

Daily chart

The decline from 2400 which stopped at 2322 is labeled as wave A of the entire correction. We have either completed or are about to complete wave B and should soon see the beginning of wave C as we come out of the narrow channel drawn on the chart– probably next week. The momentum indicators still have a little more work to do, so we could first re-test the 2398 high, or exceed it slightly.