After Republicans and Democrats reached a stalemate in Congress, President Trump issued executive orders intended to help the economy. The orders include a payroll tax deferral. The payroll tax pays for Social Security and Medicare.
This column is not intended to be a comprehensive analysis but limited to the impact of the deferral on the stock market.
Trump’s order, if implemented, would spike the stock market. Let’s explore this issue with the help of a chart.
Chart
Please click here for an annotated chart of the Dow Jones Industrial Average DIA, which tracks the Dow Jones Industrial Average DJIA.
Note the following:
• The stock market chart is monthly, giving investors a long-term perspective.
• The chart shows that after touching the upper band of the “mother of support zones,” due to coronavirus-related decline, the stock market has gone straight up. The monthly chart does not have a single red candle during the rise. This is not a normal stock market behavior.
• The chart shows that many stocks and ETFs entered Arora buy zones during the dip, providing significant opportunities to buy at low prices. For the most part, these stocks and ETFs have not gone through their normal backing-and-filling process that would be expected. This is not normal.
• When the federal government borrowed money to send $1,200 stimulus checks to most Americans, a large number of new trading accounts were opened. Did you already guess the dollar amount with which these accounts were opened? It was $1,200.
• People opening these new brokerage accounts clearly did not need the federal government to borrow and send them $1,200.
• Those who have lost their jobs need the most help. Unfortunately, a payroll tax cut will not help them.
• A payroll tax cut will simply put more money in the pockets of those who have jobs. Some of the extra money will flow into the stock market.
• The chart shows that RSI (relative strength index) is positive and the stock market is decisively above the top support zone. With the stock market so strong, it does not need further spiking by another government program.
• Many seniors depend on Social Security for most of their income. By some estimates, Social Security will become insolvent in about 15 years.
• Most seniors depend on Medicare for their health-care needs. Medicare is also underfunded….Read more at MarketWatch.
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