The U.S. stock market is in a strange place: President Trump is manipulating the Federal Reserve to lower interest rates — and the rest of us with his on-again, off-again trade deal with China. Investment managers are chasing performance as the year comes to a close. And momentum investors are inflating prices.
And now there is new information about the stock market that all prudent investors should heed. Let’s explore with the help of a chart.
Please click here for an annotated chart of ETF DIA which tracks the Dow Jones Industrial Average DJIA. For the sake of transparency, this chart was 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:
• From the chart, the first target for the stock market is Dow Jones Industrial Average 30,000.
• From the chart, the second target for Dow Jones Industrial Average is over 32,000.
• 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 in Trump’s first term several times. Please see “Here’s the case for Dow 30,000 in Trump’s first term.” Now, a few years later, Dow 30,000 calls are commonplace.
• Normally we put a lot of emphasis on the Fed. But now, at least temporarily, the Fed has surrendered to Trump and is likely to lie low as inflation remains under control. November’s core inflation (Consumer Price Index) month-over-month came in at 0.2% vs. 0.2% consensus. The headline number was 0.3% vs. 0.2% consensus. The headline number was a little bit hot but investors should focus on the core number. Also, keep in mind that although the stock market pays a lot of attention to CPI, the Fed watches many other indicators, and it is well-known that this is not the Fed’s favorite indicator.
• Performance chasing is on. In performance chasing, lagging money managers aggressively buy to catch up with their benchmarks. Please see “‘Performance chasing’ and Trump’s impeachment process could push the Dow to 30,000.”
• Smart money flows are rising in inverse ETFs. This indicates increased hedging.
• Option trading patterns are also showing increased hedging, especially in popular stocks such as Apple AAPL, Amazon AMZN, Facebook FB and Google GOOG GOOGL.
• There also appears to be increased hedging in semiconductor stocks such as AMD AMD, Qorvo QRVO, Micron Technology MU and Intel INTC….Read more at MarketWatch.
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