The Big Q: Does DJIA 20,000 Matter?

The Big Q: Does DJIA 20,000 Matter?

The Big Q: Does DJIA 20,000 Matter?

$DIA, $SPY, $QQQ, $VXX

The DJIA tapped at 20,000 on Friday, 6  January, a record level that is being closely watched by the financial media. 

Most people agree that it is just a matter of time before this Key resistance mark is attained. The longer-term significance is subject to debate.

Let us start by acknowledging that the DJIA is far from comprehensive when it comes to analytical content.

The benchmark index covers a very narrow set of stocks and therefore is lacking in representation. Its calculation methodology also is problematic, placing too much emphasis on the absolute share price, as opposed to market capitalization.

As a result, a few names can move the index significantly, most prominent are the financials which account for a substantial part of the upward move since the November 8th elections.

We all are keenly aware the DJIA is heavily mentioned when it comes to headline information about stock market performance.

Notably, the DJIA is not the only major US index flirting with record marks.

The Standard & Poor’s 500 and NAS Comp are at or near their all-time highs. So, assessing the implications of the Noise about DJIA reaching 20,000 comes to evaluating the powere of the signal, the influence on investing and business behaviors.

There is little doubt about the signaling outcomes.

Dow 20,000 will be the stuff of front-page headlines of both general-interest and financial press, and will be a trending topic in social media.

Plus market professionals will remember where they were when this Key mark was reached.

Many participants believe that all this will act as a catalyst for wider participation of the general population in stock ownership. As a bigger investor base is the best contributor to a fundamentally healthy and less volatile market.

At the fundamental level, Dow 20,000 may do little to reduce the general mistrust of the financial establishment that was heightened by the Y 2008 global financial crisis and its aftermath.

The exuberance associated with the impressive Trump Rally in stocks has been mainly a financial phenomenon. It has made it easier for companies to issue bonds, but has yet to translate into consequential changes in business investment and other productivity-enhancing behaviors that fuel more durable drivers of corporate profitability and economic growth.

This is unlikely to change just with the attainment of DJIA 20,000.

The main reason the DJIA is so close to this record level is the combination of pro-growth policy announcements by the US President Elect Donald Trump, and the hope that the GOP controlled Congress will act on these proposals.

“Politics can help change market and economic sentiment and, with that, set up a more enabling environment for growth. Indeed, the real hope for investors — and, more importantly, the broader economy — is that this financial milestone ends up helping to encourage and empower a Congress that, for too many years, has failed to step up to its economic governance responsibilities,” said Mohamed A. El-Erian, the chief economic adviser at Allianz SE and Chairman of the President’s Global Development Council.

Monday, the US major stock market indexes finished at: DJIA -76.42 at 19887.51, NAS Comp +10.76 at 5531.81, S&P 500 -8.08 at 2268.90

Volume: Trade was heavy on the NYSE with 1.17-B/shares exchanged on the NYSE

  • Russell 2000 UNCH YTD
  • DJIA+0.6% YTD
  • S&P 500 +1.3% YTD
  • NAS Comp +2.8% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.39) Neutral (0.18) Bullish (0.42) Very Bullish (0.58)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.30) Neutral (0.08) Bullish (0.38) Bullish (0.43)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.49) Bullish (0.35) Very Bullish (0.59) Very Bullish (0.53)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Very Bearish (-0.52) Bearish (-0.44) Very Bearish (-0.77) Bearish (-0.36)

Stay tuned…

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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