The Pendulum Swings BOTH Ways

The mkt struggled as we entered the last week of the March - bringing an end to the 1st qtr of 2017.....as traders/investors now fear that all the hype and excitement that was building post-election may be 'less than' expected in the months ahead on the back of the failed health care reform policy.........and as I have said numerous times - Investors will then 're-price' what they are willing to pay for stocks if their 'expectations' suddenly change...

Now look - I can't imagine that the Trump administration is that worried over the failed health care reform bill.....I mean ....it was the Democrats that have to OWN it.....they implemented it and IF it collapses under its own weight - then the Democrats will have no other choice than to take responsibility.....and we can all be sure that we have not heard the end of this......

But investors now have to decide what this means for the mkts...  and while the mkt is not interested in the 'in fighting' that is now taking place in DC - with fingers pointing in every direction.....it IS interested in what this now means for future negotiations on fiscal reforms, Tax reforms and Economic reforms.....investors and the mkts WANT reforms - that much is clear.....and so now it is asking if the GOP is in trouble and if reforms are in jeopardy.....

The mkts opened weak....falling triple digits on the Dow and double digits on the S&P.....as the concern grew...and the conversation took shape and question arose..........Will the GOP step back from Trump?   I mean - if you thought that Obama care was an issue - just think about the Tax code....It is thousands of pages and is far more complicated than Obamacare - and it has so many  carve outs for special interest groups – groups that lobby hard and donate millions  to individual congressional campaigns - they get in bed with both sides of the aisle - not ashamed at who they sleep with to get it done - and so do we really think that Tax Reform is going to be that easy???? 

I think the mkt may be realizing that Trump is battling all the democrats and some 25% or so of the republicans in congress.....so now it want sot know - What's next? 

The mkt is now down 4% off its highs in early March.....and while some think that it is just stumbling a bit - is it more than that?  Will investors just overlook this and concentrate just on the macro data and earnings or have they priced in so much reform that the mkt must now re-assess?  Look - the FED is on a path of raising rates - we know this - but the mkt and investors also assumed that we would get a range of reforms and that is now in question - so do higher rates now present a different picture for investors.  Take a look at a chart of the Dow and notice how the Dow advanced up to the beginning of March making new high after new high...investors could not get enough .....but now in the last 18 sessions the Dow has fallen 14 times and has been negative for 8 consecutive sessions......The last time the Dow put in this many negative sessions was in 1978, when the Dow fell nine consecutive days in a row.  Will the Dow tie this record today?   Look - do you realize that 50% of the 2017 gains have been wiped out in the month of March?  If the Dow  and S&P struggle this much in the coming month or two then the gains for 2017 will be completely wiped away. And remember what I said about April 16th?  There seems to be a pattern that develops after TAX day.....just sayin....

Some analysts are saying that this is a normal pull back that creates buying opportunities and maybe that is true....but I think it needs some more work before it's over.... We have been warning about investors being so bullish since the election.....and as usual - the pendulum swings both ways and it usually swings way too far to the left and then way too far to the right before it settles down......so buyer beware....and while I am not calling for a meltdown - I think many investors need to re-think the strategy and not get 'caught up' in the drama we call Washington DC.

Goldman comes out with this headline today:  (he must be reading my thoughts!)

"Risk of Correction 'quite high' but Won't Kill Bull Market"  -  and in it he outlines that the risk is not politics but fundamentals.......(there's that mkt valuation again.....as investors took stocks to higher and higher on hopes of real reform...)

US futures are currently trading flat....as the anxiety builds....and investors think about what stocks are worth if we DON'T get what we expected.....and so the pendulum may swing the opposite way - just how far it does will be the key.....and while I do agree that the macro data globally is improving - it is still very possible that stock prices have advanced well ahead of what the fundamentals dictate....Stay tuned.

The S&P broke support at the 50 dma yesterday (2331)....but managed to close above it....so now the action will be all about whether we can hold onto this level...If we test it again and fail - then the next stop will be the intermediate term support at 2275.....which brings us back to January 2017.....completely wiping away any of the 2017 gains.

Yesterday the VIX shot higher (as it touched 15) - and that makes sense as the FEAR builds....and while it pierced resistance at 12.48 on its way to 15 - it also managed to back off as the mkt settled down and investors re-grouped.  Keep your eyes on this measure as it will speak to the broader outlook of so many longer term asset managers.....If it stay right in here and backs off then the level of anxiety will subside - If though, it starts to move higher again - then the message will be:  Volatility Ahead.....
 

Take Good Care
KP

Linguine W/Sweet Vinegar Pepper Sauce 

Today's recipe - in honor of my Grandmother - comes from the Neapolitan region in Southern Italy.  Avellino actually - where my grandfather was born.  This was his favorite dish and my grandmother  made it often. It is easy to make and is quite good. 

For this you need:

Linguine, a jar of Sweet Vinegar peppers including the juice, Sweet sausages, garlic s&p and olive oil.

Bring a large pot of salted water to a boil.

In a large frying pan - heat up some olive oil and add the garlic...do not burn.  Now add the whole sausage links and brown nicely.  Once down - add in the vinegar pepper juice and the sliced vinegar peppers.  Turn the heat to simmer and cover. 

Now - add the linguine to the pot of water and cook for 8 min or....Keep it aldente. 

Now taste the sauce - too bitter right?  OK...add in some of the pasta water....add slowly and taste - you do not want to completely dilute it... Capisce?   Season with s&p. 
Now strain the pasta - reserving a bit more of the pasta water.   Remove the sausages from the pan and set aside.  Now add the linguine to the sauced and toss well.  A handful of fresh grated Parmegiana cheese is always a must.  Toss again and serve.  Add a couple of the sausage links to the plate right on top of the pasta. 

Serve some toasted garlic bread to finish this meal

Buon Appetito