So Much for the Death Cross: Dow Gains 130 Points as Tax Progress Trump Technical Terrors

Stocks are heading higher today on reports that the Trump administration is making progress on tax reform.

The SP 500 has risen 0.6% to 2,443.98, while the Dow Jones Industrial Average has advanced 131.32 points, or 0.6%, to 21,835.07. The Nasdaq Composite has gained 0.9% to 6,269.26.

Rhino Trading’s Michael Block contends “pain is to the upside.” He explains:

I still say pain is to the upside given how pessimistic market players are about both U.S. stocks AND bonds here. Politico, which is no friend of the Trump Administration or of anyone to the right of the Clintons for that matter, is reporting this morning that the Trump team is making strides on the tax plan. Bannon is gone, the hawks are doing their thing in Afghanistan and North Korea, and the “red team” led by Mnuchin and Cohn has gone to work. This is the tailwind that could quietly or not so quietly propel stocks back to the highs. And that would surprise everyone talking about technical factors and the rest of the one factor models to back up their “cool and hip” bear theses on stocks.

About those “technical factors”–can you say Death Cross?– Yardeni Research’s Ed Yardeni kicks them to the curb:

Moving-average watchers have seen plenty of (obviously bearish) ” Death Crosses “-when the 50-day moving average of the SP 500 fell below the 200-day moving average-along the way, just before they were killed by the latest stampede to higher ground. The 200-day moving average of the SP 500 continues to rise, with the 50-dma stumbling a bit recently but remaining above the 200-dma.

Market-cap watchers regularly manage to find ominous divergences in their charts. They compare the equal-weighted SP 500 to the market-cap weighted version of the index. They’ve warned that the ratio of the two has been declining all year, showing that large-cap stocks are outperforming smaller-cap ones. They gave us a similar warning during 2015 just before the market’s latest advance started early last year.

Make of them what you will.


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