4th December - Can the S&P rally extend?
04 December 2017
TECHNICALS:
MONTHLY CHART
The seeds of the dramatic bull leg we have seen since 2012 were set when the market overcame the two highs from 1999 and 2007.
The pause in 2015 was best understood as a complex continuation Head and Shoulders, suggesting, when complete ,a move up as far as 2500 or so, as a minimum.
We are now beyond that level. Without a fresh continuation pattern to add impetus to the trend, it is vulnerable to retracement at the very least, if only to test the diagonal trendline support from 2008 which is far beneath the market because of the acceleration of the trend.
DAILY CHART
The day chart is interesting, because there has been an increase in volatility without the short-term trend being tested ...
Short-term, the band of horizontal support 2576-2594 is critical to maintain short-term bull momentum.
FUNDAMENTALS:
The rally in the S&P has been fuelled by a combination of strengthening US growth and a still very accommodative monetary policy.
Although the Fed is likely to hike again at this month’s meeting, it will surely be another 25bp move, meaning rates have only moved up by a total of 75bp over the last twelve month period.
By contrast, the pace of growth has moved up throughout the same period and now stands at a very solid 3.3% annualised.
During this period President Trump has been pushing Congress to turn his tax reform campaign pledge into legislation and that promise has also under-pinned the rally in the S&P, as a tax cut for both companies and individuals would move growth up to another level.
The Federal reserve would obviously not sit idly by, since it is estimated the initial impact would be to add US$1.5Trillion to the deficit and risk driving up inflation, meaning the Fed would most likely react by tightening monetary policy more aggressively.
However, all of that is clearly in the price, as the market has continued to make new all time highs.
So what could rock the boat and undermine what has been an impressive rally?
Throughout the twelve months of Trump’s period in office, there has been much talk in the media and among politicians about Trump’s campaign team having inappropriate contacts with Russian government officials, possibly to the extent that Russia influenced the outcome of the vote.
Although President Trump has consistently denied any Russian involvement or help during his campaign, Congress nevertheless appointed a special prosecutor to investigate.
Last week, the former National security advisor to Trump admitted that he had lied and had contact with Russian officials during the campaign.
The US Congress and indeed US public and the markets, will want to know what those contacts were, what their aim was and who else in the Trump team was involved and more important, was Trump aware and/or involved himself.
Clearly if the answer to those questions was that Trump knew and was involved and gained information from the Russians that can be proved to have had an affect on the out come of the vote, his Presidency will be in trouble and Congress would likely seek to impeach him.
We had a hint of how the market would react to such an outcome on Friday when the Flynn story broke, imagine the reaction if the investigation leads all the way to Trump?
We judge for now the market is likely to steady and bounce back. These kind of investigations take time and impeaching a President is a serious business and requires solid evidence, it seems for now that evidence has yet to be discovered, if indeed it exists.
In summary we judge the bull trend remains in place.
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19th January - Can the S&P rally extend further? 
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17th November - Oil, fundamental obstacles in the way of bullish charts