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The NAVIGATOR - APRIL 2018 - Trump Tariffs Cause Nasdaq 100 Wobble - Up-Coming May Decline of -19% - US$ Dollar Declines into May Low - Then Stages Multi-Month Upside Recovery

In This Edition:        

Stock markets began this year on a euphoric note with January’s gains of +6.8% per cent for the benchmark S&P 500 but there were already telling signs of an imminent peak approaching as outlined in January’s 2018 annual forecasts report. By mid-February, indices had declined by almost -12% per cent! Since then, analysts and pundits alike have attempt to rationalise the decline with various stories ranging from the benign to the absurd but none seem adequate to explain the sell-off other than the more common-sense realisation that when prices run exponentially higher as they did into the final months of last year, they’re always followed by exponential corrective declines afterwards. What is really interesting about the Jan/Feb. sell-off is that some indices like the S&P 500 and Dow Jones (DJIA) unfolded into typical 5 wave patterns whilst others like the Nasdaq 100 and the KBW Banking index unfolded into corrective 3 wave patterns. Declines into five waves implies downward continuity whilst three wave sequences indicate a correction has ended with upside potential, so how can these two differing patterns be reconciled? There is only one way – the underperformer like the S&P 500 are continuing to unfold into a 5-3-5 zig zag whilst the Nasdaq 100 and the other outperformers continue from January’s highs as 3-3-5 expanding flat patterns. This allows the indices to continue trading in sync as multi-month corrective patterns. This month’s report identifies where they are currently trading within these patterns and measures relative price amplitudes. This month’s report also updates various sectors, including the KBW Banking index, XLY Consumer Discretionary, XLE Energy and XLU Utilities. We also update the MSCI Emerging Market index and one of its key components, the Brazilian Bovespa index.

Currencies have been in focus recently following President Trump’s U.S. import tariff plan for steel and Aluminium. Retaliatory actions are currently being planned from Europe and elsewhere which have stoked fears of a global trade war. Meanwhile, new Federal Reserve Chairman Jerome Powell has given his inaugural speech to the House and Senate but without any emphasis on monetary policy. He has hinted that it’s important to keep the status quo from the previous policies of Janet Yellen so for the moment, the markets are building expectations of three interest rate hikes for this year. Despite the European Central Bank committed to maintaining loose monetary policy until September, consensus expectations are for a continued decline in the US$ dollar, throughout most of 2018. That was certainly the case amongst over 95% per cent of participants at last month’s Independent Research Conference held in London. Our Elliott Wave and cycle analysis digs deeper into the US$ dollar’s decline that began from the January ’17 peak and comes up with a few contrarian forecasts for the next several months.