A Dow Rebound
Donald Trump said the stock markets were "making a big mistake" two weeks ago when the sudden downturn I mentioned in my previous post occurred. Well, this past week was a different story. This bull market is showing historic resilience. The Dow powered upward all five days last week in what was its best week since 2013. Was Trump right?
In 2017, the Dow rose 5,000 points, a record! Trump has mentioned 30,000 as a target for 2018. So, perhaps the minor "snapback" of two weeks ago was an anomaly. Maybe we are never going to touch the 200-day moving average again (that's sarcasm).
My last post mentioned that many of the technical indicators used when charting stocks were flashing "overbought," sending the Dow into correction territory. The republican tax cut fed fuel to the already hot markets. Initially, the concern was for the economy overheating - sending interest rates and inflation higher as well as driving up the debt. In almost bi-polar fashion, this past week no cared about any of that. It seems now that no one can agree on why the markets went down to begin with. Apparently, a reinterpretation of bond yields partly explains the rise this past week.
Here is the chart reflecting the power of this bull market over the past week.
Despite an amazing week, my bet is still on a snapback to the 200-day moving average. It simply defies the gravity of the markets for the Dow to go so long without touching or testing that level. Still, instead of a snapback we might see something else. Snapbacks are violent and sudden, moving straight up or down as quickly as possible. We saw the "down" part in 1987, 2002, and in 2008. But a less violent occurrence is a "range-bound" return to mean average, moving rather insignificantly up and down over a period of time necessary for the still rising 200-day MA to "arrive" at the level of the Dow. Which will it be?
An old investing adage goes something like this: "The stock market always does what it is supposed to do, we just don't know when it will do it." That certainly seems to apply here, even if this Bull continues to power upward.
It is noteworthy that while the Dow and the S&P 500 were up, the NASDAQ was down on Friday, though strongly up for the week. The S&P had its strongest week in five years. Gold was also up big for the past week, its best week since 2016, on inflation fears and a weak dollar. Even though I have added some mutual funds over the past couple of years, I am still vested in gold.
This Frobes article from yesterday is the best overall analysis of the current situation I have read. Meanwhile, the strength in the stock markets and in the economy as a whole seems to play right into Trump's luck. This bull market started in 2009, it accelerated when Trump was elected. But it has accelerated before. The economy reached a hot 5% GDP in 2014 (something even Trump can't crow about yet) and the Dow had a great year. The current strength of the U.S. economy is not a new thing. We are living in a rare time of low unemployment, consumers are spending more. Will the underlying strength of this to continue? As I have posted before, no one knows for sure.
In 2017, the Dow rose 5,000 points, a record! Trump has mentioned 30,000 as a target for 2018. So, perhaps the minor "snapback" of two weeks ago was an anomaly. Maybe we are never going to touch the 200-day moving average again (that's sarcasm).
My last post mentioned that many of the technical indicators used when charting stocks were flashing "overbought," sending the Dow into correction territory. The republican tax cut fed fuel to the already hot markets. Initially, the concern was for the economy overheating - sending interest rates and inflation higher as well as driving up the debt. In almost bi-polar fashion, this past week no cared about any of that. It seems now that no one can agree on why the markets went down to begin with. Apparently, a reinterpretation of bond yields partly explains the rise this past week.
Here is the chart reflecting the power of this bull market over the past week.
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| The reversal of the alleged correction gave us the strongest week on the Dow since 2013. The Dow returned to the 50-day moving average which might be a sign of strength. But notice the red circle. Those bars across the chart represent volume, the number of shares traded on a given day. Volume went down as the market went up. This is a reflection of buyer uncertainty and may suggest a still underlying weakness yet to reveal itself. |
An old investing adage goes something like this: "The stock market always does what it is supposed to do, we just don't know when it will do it." That certainly seems to apply here, even if this Bull continues to power upward.
It is noteworthy that while the Dow and the S&P 500 were up, the NASDAQ was down on Friday, though strongly up for the week. The S&P had its strongest week in five years. Gold was also up big for the past week, its best week since 2016, on inflation fears and a weak dollar. Even though I have added some mutual funds over the past couple of years, I am still vested in gold.
This Frobes article from yesterday is the best overall analysis of the current situation I have read. Meanwhile, the strength in the stock markets and in the economy as a whole seems to play right into Trump's luck. This bull market started in 2009, it accelerated when Trump was elected. But it has accelerated before. The economy reached a hot 5% GDP in 2014 (something even Trump can't crow about yet) and the Dow had a great year. The current strength of the U.S. economy is not a new thing. We are living in a rare time of low unemployment, consumers are spending more. Will the underlying strength of this to continue? As I have posted before, no one knows for sure.
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