Some investors believe the rules of risk and reward have been suspended, as the U.S. government borrows heavily and the Federal Reserve prints money to prop up the economy.
A dangerous connection is forming between stock market investors and politicians gone berserk.
There are many stimulus proposals from both Democratic and Republican politicians. An example is the Monthly Economic Crisis Support Act offered by Sens. Bernie Sanders, Kamala Harris and Ed Markey. The bill would send as much as $10,000 a month to families.
The cycle of politicians borrowing and money printing, and investors buying stocks is right in front of our eyes. This is dangerous in the long term, as the debt has to eventually be paid off. It does, of course, provide us with money-making opportunities in the short to medium term. Let’s explore with the help of two charts.
Two charts
Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA, which tracks the Dow Jones Industrial Average DJIA.
Please click here for an annotated chart of the S&P 500 ETF SPY which does the same for the S&P 500 SPX.
Note the following:
• The first chart gives stock market investors a long-term perspective.
• The second chart gives investors a short-term perspective.
• The first chart shows that, so far, the stock market has not been able to break through the resistance zone after bouncing from the top band of the “mother of support zones.”
• The second chart shows RSI (relative strength index) divergence. In plain English, this means that as the stock market has risen, RSI has fallen. This indicates a loss of internal momentum.
• Investors have been hiding in five big stocks: Amazon AMZN, Apple AAPL, Facebook FB, Alphabet GOOG, GOOGL and Microsoft MSFT. Investors may want to carefully watch how these five stocks react to news. For example, as of this writing, there is a rumor that Amazon may buy AMC Entertainment AMC. Read: “Investors have $5.1 trillion hiding out in the shares of five companies, which will be tested this week.”
• Investors should pay attention to the potential of negative interest rates in the U.S….Read more at MarketWatch.
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