Many analysts and money managers have been uncomfortable with this rally off of the 23 March bottom. In April, US stocks entered an uptrend, as can be seen in the following DJIA chart below.
The global coronavirus chaos and its economic devastation, including the instant recession and the fastest Bear market on record has people still very cautious.
The long-term trend for equities has been sideways with a Northside bias, as can be seen in the following monthly chart below.
This ranged action has been going on for 3 yrs. The dynamics that dominate a pattern assumed to be a Top are meant to last for months.
But in this economy created by Fed QE savers are punished as interest rates, including bond yields are ultra-low, allowing investors to borrow at the ultra-low rates and leverage themselves fully into stocks, which provide the promise of higher returns and infinite profits.
So, if people are smart they must recognize this reality: after the S&P 500 Index entered a long-term uptrend last wk, joining the NAS Comp, the mega-cap Dow is set up follow.
Shayne and I are betting that President Trump will pull out all the stops to support the equity rally ahead of his 2020 reelection bid.
He’s already authorized the FDA to fast-track convalescent plasma as an emergency treatment for C-19 and threatened drugmakers with an ultimatum to lower pricing.
With that and more coming participants will start to recognize the potential Bullish pattern setting up and shown in the DJIA’s daily chart, above.
The Dow looks not to have completed a falling flag, a frame where the early Bulls cash out following the quick 8% spike, while Bullish newcomers pick up where the older ones left off to take up what they believe is a repeat-move.
The Northside breakout on 18 May demonstrates that the new buyers absorbed all the available supply from the 1st-leg Bulls and were forced to increase their offers to find new, willing sellers at higher prices.
The breakout will force a Short squeeze and trigger Longs, driving prices higher. The expectation is that the newer Bulls that entered on 20 July will want to earn as much as the earlier Bulls and therefore drive prices the same distance.
Note: the flag is supported by the 8 June high, reinforcing its Bullish dynamic.
With that in mind:
- Conservative traders may want to wait for the falling Gap to be closed, or even for a new high, before risking a Long position below such powerful technical forces.
- Moderate traders might risk a Long position after a close above the flag’s high point of 28,155.
- Aggressive traders may buy into a position at will.
The target is 30,000 and the risk/reward ratio is 1:10
Have a healthy weekend, Keep the Faith!