What Postponed The DOW From Reaching 20,000

 

On my last blog I was wondering whether we would make the 20,000 level and if you read what was said on the Arora Report that it would be wise to sell your stocks and take your profit you can see the Dow is having trouble reaching the 20,000. The fact is the on-again, off-again romance between the Dow and the 20,000 milestone is officially on hold.

The Dow Jones industrial average’s  with 20,000 has cooled since Jan. 6 when the stock index faced making a market moment just short of  0.37 points of making its history-making milestone.

What postponed the Dow from reaching 20,000? In the seven trading days since the Dow was turned back just shy of the 20,000 mark, the 30-stock index has been in retreat. It has finished lower six of the past seven sessions. And after Wednesday’s drop of 22 points to 19,804.72, it is nearly 200 points away from the milestone.So what gives?

“Trump rally” matures. Dow 20,000 is just a number. But the near-miss milestone coincided with a stock market that had run far and fast since Election Day. From the first day of trading after Donald Trump won the White House until Jan. 6, when the Dow came within a whisker of topping 20,000, the Dow surged nearly 1,700 points, or 9.1%.
The bulk of those gains were driven by hope. Investors began pricing in a stronger economy and better corporate earnings based on Trump’s business-friendly policy proposals.Profit-taking was bound to kick in, especially since the Dow was at its most “overbought” level since November 1996, according to Mark Arbeter, president of Arbeter Investments.“The sugar high is wearing off,” Terri Spath, chief investment officer at Sierra Investment Management, wrote in a recent report. Although, Friday the market finally went up again after Trump made his speech at his inauguration. Giving investors hope again that he will keep to his word.

Stocks go flat after downgrade. On Jan. 9, the first trading day after the Dow came closest to 20,000 Goldman Sachs slowed its climb further when it downgraded fellow Dow components Coca-Cola and Procter & Gamble to “sell” investment recommendations. That helped push shares of the stocks lower.

Goldman Sachs, JP Morgan and other Dow financial shares shot up after Trump’s win. The idea of less regulation of banks, a better economy and the prospect for rising interest rates put banks in the “Trump Rally” sweet spot. But the bank-fueled rally has stalled since Jan. 6, the same day the Dow came within a single point of 20,000.

Goldman Sachs ran up 35% from Election Day until Jan. 6, and was the Dow’s top performer in that span. But since then, it has been among the Dow’s worst performers, tumbling more than 4%. In a sign of how the bank rally has stalled, Goldman shares fell 0.6% Wednesday despite reporting quarterly earnings and revenue results that exceeded analyst expectations.

“The first leg of the ‘Trump trade’ is largely over,” Jason Trennert of Wall Street firm Strategas Research Partners, said in a note. “The next leg of the Trump trade will come when we learn more about specifics of corporate tax reform and deregulation.”

Imaginary ceiling halts rise. Big round numbers like Dow 20,000 often act like an impenetrable ceiling that take time to break through and then act as a magnet for a period of time. The best example might be what happened to the Dow around 1,000, says Bob Baur, chief global economist at Principal. He notes that the Dow came within five points of topping 1,000 back in February 1965. But the Dow didn’t close above 1,000 until Nov. 14, 1972, according to S&P Dow Jones Indices. The Dow didn’t say goodbye to 1,000 for good until 1982, or 10 years later.

So as you can see we can be playing around the 20,000 mark for sometime and who knows what is going to happen, but if Trump does any of the things he has promised it looks like we could see the 20,000 mark being reach without any trouble. If he doesn’t do as he has stated we already know the market is going to crash, because we so it start taking a good drop just by the way he handled the press.

What Are The “Unpopular” Things To Do As DOW Nears 20,000

 

Upon reading an article the other day, it was noted that an investor who had been with investing for over 35 years and is the editor of the Arora Report. In the last article he had the Aurora charts which you could see some important changes in the stocks. In the article Nigam Arora, investor, engineer and physicist wrote the five most unpopular things to do and here is his conclusions. In his charts he showed 5 stocks, these were Martin Marietta (MLM) Pfizer (PFE) General Mills (GIS) Duke Energy Corp. (DUK) and Nvidia (NVDA) These stocks are compared with the S&P 500 ETF (SPY) in the charts. Some readers may say that the five stocks listed above have good fundamentals and technicals. The unpopular, but prudent, action, however, is to take some profits now that the Dow Jones Industrial Average (DJIA) is close to an expensive 20,000 points.

“If both fundamentals and technicals are good, why take partial profits?” might be the question. The answer lies in an important concept that some investors and analysts tend to ignore at their own peril. The concept can be best described by one word: “over-owned.”In the simplest terms, stocks go up when there are more buyers than sellers. What happens when almost everyone who is going to buy a stock has already bought it? The answer: There is no fuel to propel the stock upward and it appears the stocks are beginning to take a downward drop.

As an example, The Arora Report gave a “sell” signal right at the peak before Apple (AAPL) fell by over $300 pre-split. One key component of our algorithms that made the call was over-ownership. (This call can be easily verified if you have been a subscriber to The Arora Report or by reading MarketWatch.)

Sell popular infrastructure stocks. Infrastructure stocks are going well. On the surface it makes a lot of sense. Trump plans to build a wall on the Mexican border and has been emphasizing improving infrastructure throughout the U.S.It’s important to note that infrastructure stocks were also Hillary Clinton stocks. A favorite Wall Street thesis was to buy infrastructure stocks as it was deemed a winning proposition irrespective of who won the election. As a result, the stocks were overbought going into the election, and now that the election is over, are becoming even more overbought. Furthermore, these stocks are expensive both relative to their own histories and their projected earnings growth rates

Examples of infrastructure stocks are Martin Marietta, Vulcan Materials (VMC) Granite Construction (GVA) Tetra Tech (TTEK) Fluor (FLR) KBR (KBR) United Rentals (URI) Aecom (ACM) Terex (TEX) and Manitowoc (MTW)These stocks should be avoided, but considered for purchase only in the event of a pullback.

Sell popular pharmaceutical stocks Americans pay a lot more for drugs than people in other countries. That’s why you ought to sell large U.S.-based companies. After all, they are at risk of Trump tweets. Examples include, Pfizer, Johnson & Johnson (JNJ) Merck (MRK) Bristol-Myers Squibb (BMY) Abbott (ABT) and Eli Lilly (LLY).

Sell popular utility stocks. Utilities will benefit from deregulation, but higher interest rates will outweigh that. These popular stocks have become very over-owned and expensive. Examples include Duke Energy, Southern Co. (SO) NextEra (NEE) American Electric Power (AEP) PG&E (PCG) and Edison International (EIX).

Trim dividend-paying stocks. Dividend-paying stocks have been very popular and over owned. As a result they have become very expensive. They will be negatively impacted by rising interest rates. Examples include General Mills, Kellogg (K) Philip Morris (PM) Kimberly-Clark (KMB) Sysco (SYY) and Tupperware (TUP)

Trim popular technology stocks. Investors are oblivious that some popular technology stocks get a large portion of their sales from China. If there is a trade war with China, these stocks will get hurt. A rising dollar also is punitive. Examples include Nvidia, Broadcom (AVGO) Intel (INTC) Cisco (CSCO) IBM (IBM) and Oracle (ORCL).

Some of the cash raised from sales described above should be used in less risky stocks and ETFs that are likely to do well. Now that you found out what are the unpopular things to do when DOW nears 20,000 from Nigam Arora do you think you will be able to brave it and invest wisely.

What Is Happening In The Dow Jones

 

Do I hear 20,000? 21,000? That’s the subject Wall Street investors are starting to consider after post election euphoria has stretched equity markets deeper into the record books since Nov. 8. Does anyone really know what is happening in the the Dow Jones.

The Dow Jones Industrial Average has scored 14 record finishes since Donald Trump’s election, putting the blue-chip gauge near the psychologically significant level of 20,000. Other stock benchmarks, including the Nasdaq Composite Index and Russell 2000 index finished at records as well.

Assuming the indexes continue to lurch forward into the next week or two, that puts the gauge on pace to log the fastest 1,000-point rally since the Dow moved from 10,000 to 11,000 in from March 29, 1999, to May 3, 1999 — a 24-day trading day span, according to Dow Jones data.The Dow closed above 19,000 on Nov. 22 and took 483 trading days to span the 1,000-point bridge.

The broad-based rally has been supported by the expectation that Trump will unleash a raft of pro-business policies, including a rollback of regulations, tax cuts and fiscal spending. Signs that the market is already on a solid economic footing relative to other economies across the globe and comparatively better quarterly results from U.S. corporations isn’t hurting.

Trump won’t be a ‘dangerous’ president, says Goldman’s CEO Investors appear to be buying into those prospects, which are far from a reality.

Of course, there are a lot of signs that the market is getting overheated. Wall Street’s fear gauge, the CBOE Volatility Index (VIX) a measure of the market’s expectation of volatility, is hovering around 12, a level that suggests investors may be growing complacent and are ill-prepared for a shock to the system. Levels above 12 imply the expectation for even more volatility and some argue that on a rolling basis, stocks are getting pricey and are due for a reversal. We have seen time when the market has gone crazy high and took terrible crashes, such as in the 1920’s.

The CAPE ratio, which compares stock prices with earnings over the past 10 years, shows that the S&P 500, which closed at a record, is trading at 27.9 times, citing Nobel laureate economist, Robert Shiller. By that measure, the stock market is now flashing a bright red warning sign, implying that a crash may be imminent in the broad-market S&P 500 index (SPX), but even Shiller, who appeared on CNBC to discuss his CAPE ratio, said this metric may be off because of Trump. He views the real estate mogul as an unprecedented candidate whose policy impact could elude models.“You have to look. We just got a new president who wants to cut corporate-profit taxes and he wants to ease regulations. My own indicators are a little bit less effective in this environment,” Shiller said.

Even after the  Federal Reserve’s increase in the interest the market has manage to maintain its numbers but the 20,000 mark still has not not been reached. Does this bouncing back in forth mean a drop is near. Who knows everything seems to waiting for Trump to begin his Presidency.

“Ultimately, Dow 20,000 is just another big round number,” said John Canally, Chief Economic Strategist for LPL Financial. “Over the long run stock prices are driving by earnings of the companies in the stock market. If the economy is sound, if the Fed is doing its job and the politicians don’t get in the way, corporate earnings should matter more to investors than ‘the big round numbers.