There are 10 things that stock market investors ought to watch out for in January.
First, let’s build the requisite background with the help of two charts.
Please click here for a long-term annotated chart of the Dow Jones ETF DIA, which tracks the Dow Jones Industrial Average DJIA.
Please click here for an annotated 25-year chart of S&P 500 ETF SPY, which tracks the benchmark S&P 500 Index SPX.
For the sake of transparency, both charts were previously published and no changes have been made.
Note the following:
• From the first chart, the first target for the stock market is Dow 30,000 points, and the second target is over 32,000. Dow 30,000, during Trump’s first term, has been the longstanding target given by The Arora Report.
• To wit: When I gave a “buy” signal on Donald Trump’s election at a time when many were predicting a big stock market drop, it was at first met with incredulity. When shortly thereafter I called for a high-probability scenario of the Dow Jones Industrial Average hitting 30,000 points in Trump’s first term, I received a ton of hate mail. I have subsequently repeated that call several times. Please see “Here’s the case for Dow 30,000 in Trump’s first term.”
• The first chart shows that the stock market was overbought about a month ago but there was room to run. To determine overbought and oversold conditions, the relative strength index (RSI) is the best indicator for a number of reasons. However, in addition to the science of using RSI, it is also an art that investors ought to learn. In general, in trending markets, overbought markets often become more overbought.
• There is one striking aspect in which the present-day stock market is similar to that of 1999.
• As the second chart shows, in 1999, the stock market was primarily controlled by the momo (momentum) crowd. And 20 years later, in 2019, the stock market is primarily controlled by the momo crowd again.
• Nobody wants to talk about the momo crowd because it is not in the interest of the establishment. The stock market is going up not because of higher earnings, not because the economy is getting significantly better and not because valuations are low. Buying in the stock market is occurring simply because it is going up. If analysts were to admit this simple fact, there would not be much need for their seemingly sophisticated analysis.
• The second chart shows RSI divergence. In plain English, it means that as the stock market has risen, internal momentum is not keeping pace. This is a reason for caution.
• The second chart shows that volume is low. This indicates a lack of conviction in the rally. This is another reason for caution…Read more at MarketWatch.
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