So was the failure to get the Republicans’ Healthcare plan passed by Congress bearish for stocks or not?

The US stock market seemed relaxed about it at the close on Friday. This led to thoughts that markets may not be too phased about this failure.

However, there’s a chance that US markets will be sold tonight in a delayed reaction. Certainly the Asian markets are nervous about this possibility. Bond yields and the US Dollar are weaker. Asian stock markets and US stock futures are also down despite Friday’s steady lead from US markets.

Japan 225 chart

The Japan 225 looks well placed to assess market views on this situation.

If markets do get more nervous about this situation , not only would US stocks provide a weak lead but  the US Dollar may also fall further, putting additional pressure on Japanese stocks via a stronger Yen.

The Japan 225 index broke below the support of a wedge pattern last week but rose to retest resistance on Friday. If the index finishes with a lower low today this potentially bearish re-test will be confirmed with the market making a lower high and lower low. Ideally, it would also close below Friday’s low to indicate sellers are in charge.

That scenario could lead to a significant correction of the post US election rally and bring the 38.2% Fibonacci retracement level around 18,330 into play.

Trumpcare and the markets

This could be a fascinating week for markets. If the negative reaction to the healthcare failure turns out to be relatively minor, traders need to be alert to the possibility that, contrary to conventional thinking; current market strength might be despite, not because of, the Trump Administration.

Another factor in all this is that the US Government is now going to turn its attention to tax reform which is after all the key issue for markets.

It’s true that failure to repeal Obamacare makes tax reform more difficult. It means there won’t be budget savings from health reform.  However, it may also increase the Government’s incentive to make sure it gets at least some success on tax reform. This is likely to include negotiation with the Democrats rather than risking another failure.

If it goes the other way and a significant downward correction continues to unfold  from these levels then we can assume that the Trump factor will remain as a source of significant volatility and opportunity for traders.