The difference of opinion between two groups of investors on the U.S. trade deal with China could not be farther apart.
Pro-Trumpers are having their moment in the sun and salivating at the prospect of major new gains in the stock market to come. Anti-Trumpers are convinced that the president’s house of cards will fall, taking the market down with it. For investors in both groups, there is peril in their opinions. Let’s explore with the help of two charts.
Please click here for a long-term annotated chart of ETF DIA which tracks the Dow Jones Industrial Average DJIA.
Please click here for a short-term annotated chart of ETF DIA.
For the sake of transparency, both charts were previously published and no changes have been made. Similar conclusions can be drawn from charts of S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
Note the following:
• I am politically agnostic. My sole job is to help investors.
• 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.”
• As the first chart shows, the stock market has significantly risen under Trump. Those who sold on Trump’s election lost out on big gains. Those who did not properly invest because of their feelings about Trump also did not partake of the profits in the stock market.
• Just because pro-Trumpers made huge gains in the stock market does not mean projecting forward is the right thing to do.
• From the chart, the first target for the stock market is Dow 30,000 points, and the second target is over 32,000.
• Many technically oriented investors sold aggressively when the stock market recently became overbought and missed out on the gains since then.
• 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.
• The second chart shows the VUD indicator, which is the most sensitive measure of net supply and demand of stocks in real time. After Trump’s tweet last week that the trade deal was near, pushing up stocks, there has been net selling, as shown in orange on the chart.
An objective look at the trade deal
Here are the salient points for stock market investors who want to be objective.
• It is a win for Trump and investors in the short term.
• From a longer-term perspective, it is a weak deal for the Unites States and a strong deal for China….Read more at MarketWatch.
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