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Thursday, November 9, 2017

Market Alert - Pre-Market

Futures vs FV: SP -13.53, DJ -109.36; NASDAQ -50.34

The BTD faithful will have one heck of an opportunity to step in today as futures trend lower all morning toward the bell. A modest bounce starting 8:00ET has fizzled as stocks hold near the morning lows.

The selling started when Japan's market hit a new high then sharply reversed to -2%. It managed to recover to close down just -0.2%. Now THAT is a reversal both from the high and from the low in one session. The BTD crowd certainly went to work there, but it would appear the rest of the world has to go through the same process itself, if it can.

Even with the recovery, however, that kind of volatility after a good run higher is typically not a good thing. The bigger picture item to watch for in the US is whether VIX is rising with stock prices. It is not the case in the US now, i.e. no trend higher in VIX on this last stock market rise. That indicator, is often an early warning indication of a major top forming. Again, not happening right now. Doesn't mean you don't get corrections . . .


China: Trump comments in China are blamed by some for the selling. Trump said Chinese trade with the US is unfair (nothing new), gave China 'credit' for taking advantage of the US the way it did. He said that was all before his buddy XI took over, however, and they announced $250B in trade deals. Of course, as is the case with anything he does, many are saying those deals have no substance.


Retail earnings are also a designated scapegoat for the weak open. KSS, S, PRTY and others are out.

BEATS: M; NCLH; ODP; DRH; FOX; SQ; PRGO

Misses: KSS (BL); PRTY (TL); TIME (TL); DISH (TB); IACI (BL); HOST (TL)


Taxes: The Senate bill is back on for release today and is said to have a different rate structure and eliminates SALT deductions. If there is to be true reform the deductions for what the individual states decide to spend has to be eliminated. It is logically inconsistent to allow states who chose different forms of taxes to deduct those from the federal rate. That is the state income tax, property tax issue that will impact many so hard. It is the ripping the band aid off analogy mentioned Wednesday. Lots of pain at first but ultimately better. Once they are in place, however, very, very hard to remove because of the pain it causes but it causes a bigger problem overall. That is why you don't mess with these things. Just have a flat tax at a low rate it cannot rise above, and be done. 6% would work, perhaps up to 9%, but no more. Stop all the other manipulation and be done with it. OR just go to a consumption tax, not a VAT, a one-time consumption tax paid by the end user. Then it is the choice of the buyer, and it also promotes GOOD economic policies to foster a strong economy and confident consumers that WANT to spend. Bad policies result in bad economics and low tax levels. Provide an incentive for the government to promote policies that work, that history shows work. I know, I Know, a pipe dream that the government would actually believe in markets.


OTHER MARKETS
Bonds: 2.335% vs 2.326%

EUR/USD: 1.1624 vs 1.1587

USD/JPY: 113.34 vs 113.98

Oil: 56.90, +0.09

Gold: 1288.00, +4.00


Again, the BTD faithful will have their faith tested. Worked in Japan but again, it is not great to see this start.

THAT SAID, recall I talked of SHARP drops in the 1999 rally at Thanksgiving. Two HARD days of selling on volume, then nothing but net to the upside through March 2000. Strong moves in place, nothing has changed in the bigger picture outside the Tax issue and the questions there. Maybe that is the anchor chain, but watch for the big names and how they respond today. Small caps -- don't expect much unless the Senate tax plan is met with euphoria. Did I say pipe dream?


Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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