The Bull-Bear Cycle and DJIA 30,000

The Bull-Bear Cycle and DJIA 30,000

$DIA, $SPY

As we enter Y 2019 readers are asking the Big Q: Is the Bull Market, the longest in history, dead, or moving steadily ahead after a healthy pause to refresh?

The volatility in terms of the numbers has shaken some folks, but those of us who play the percentages are not overly concerned.

The DJIA closed at 23,327.46, for a 5.6% loss in Y 2018, after Y 2017 brought gains of 25%, and more than 19% on the S&P 500.

An alternative calculation for the Dow, represented by the Diamonds ETF (DIA) (which I watch carefully), in an effort to include dividends, lost 8.5% in December and make for a 3.7% loss in Y 2018.

So, when asking if the Bull Market is dead now is really a question from investors that are not clear on how the stock market works.

After a year end review of the 30 DJIA components forecasts of how the market would be expected to perform, our work shows that the outlook for Y 2019 was the 1st time in years did not reflect the recent market volatility and expected some mild headwinds in Y 2019.

There are lots of elements to consider but the preliminary Y 2019 forecasting targets 29,000 to 30,000 DJIA in Y 2019 and perhaps higher.

We targeted DJIA at 26,400 in Y 2018, it hit the target in the 1st 3 weeks of the year. We forecast a 20% gainer in Y 2017, move was a 25% gainer to 24,719.22 on the year.

The major US stock indexes of the DJIA, S&P 500 and NAS Com under-performed the consensus estimates in Y 2018 after having outperformed every large brokerage firm’s Wall Street strategist expectations in Y 2017.

Tracking the stock market action: the financial media tracks is the pullback aka correction, from the high for determining a correction minus 8 – 11%; a Bear market minus 20%.

The DJIA’s 23,327.46 close for Y 2018 actually was down 13.4% from the peak of 26,951.81, thus giving the financial press license to publish that the stock market is now between correction and Bear market territory.

Note: After the passage of The Trump Tax Reform and after seeing GDP crack the prior 4% resistance in Y 2018, there are risks in Y 2019 that just have not been on the cards heading into a New Year, for instance:

  • The resolution of international trade issues with China
  • BREXIT
  • A hawkish Fed and
  • The potential inversion of the yield curve
  • Slower earnings and sales growth
  • Slowing GDP
  • A slower pricier housing market
  • Tighter credit standards
  • A divided Congress

We have not see so many outliers in prior Bull-Bear cycles.

With all of that stuff in mind, consider this about the market heading into Y 2019.

The DJIA ended Y 2018 with a market capitalization of $5.56-T.

The S&P 500, and valued at the end of Y 2018 at 17.7X trailing earnings, but the index was valued at 15.5X forward earnings for the end of Y 2016. As Y 2018 ended, the mean dividend yield of all 30 Dow stocks was 2.7%. That compares to an average Dow dividend yield of 2.4% at the start of Y 2018 and 2.6% at the start of Y 2017. These are Vs 2018-ending yields of 2.68% on the 10-yr US T-Note and 3.02% on the US Treasury’s 30-year bond.

At the start of Y 2018, 7 of the 30 Dow stocks had higher share prices than the consensus price targets. And, the average upside of almost 4.4% to consensus targets would create an expected total return of 6.75% for Y 2018. By combining the yields and price gains, the mark came to 26,400 at the start of Y 2018.

Now, with a projected price increase of 22% on Top of the 23,327.46 close of Y 2018, the current model’s Y 2019 forecast would be about 29,000. Counting in dividends, which we do here at HeffX-LTN, in the implied upside calculations, it shows a Y 2019 target of about 30,000 total return to investors.

In the last 5 trading days our Key technical indicators for the US major stock market indicators have moved from Very Bearish to Bearish/Neutral.

We always take what the market gives.

Have a terrific New Year!

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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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