The Dow Jones: Possible Hop, Step, Jump Move?

On August 29, I warned you that the market would correct from September 1 into late October. Again I warned you that we could see a return to a correction in late October. The ASX 200 is down 3.9% this month — this seems reasonable considering the selloff in the iron ore price and crude oil.

I said a fortnight ago that the Dow Jones had two options: correct now, or blast off. As per the November theme, it did anything but correct. And is yet to blast off.

You have to say that the Dow Jones is one stubborn beast.

It doesn’t matter whether it’s OPEC’s decision to keep pumping out oil, the conclusion of the US Fed’s money printing program or end of the year tax selling. The Dow Jones is still standing after everything that the market has thrown at it. This is a major signal that it’s getting ready for a breakout in a big way. Whether that comes this month or early next year is anyone’s guess…but the fact is that it’s coming very soon.

Speaking of OPEC, let’s talk about oil for a tick.

I really don’t know how the mainstream media could report that OPEC’s move was surprising.

I explained the oil price wars to Diggers and Drillers readers well before this ‘shocking’ decision. In the eighties and nineties, OPEC made this same move multiple times, bankrupting much of the US oil industry. Why did commentators around the world expect this time to be any different?

The oil price wars are here to stay in 2015. In fact, over past month, I’ve shown Diggers and Drillers readers why crude will fall to US$58 dollars next year. Kris Sayce, Editor of Tactical Wealth, explained in Money Morning last week how lower oil prices are bullish for equities.

I couldn’t agree more. This is just another bullish sign to buy quality companies.

Lower oil prices will drive US investor confidence next year. It’s said that when Texas isn’t booming, you head to Wall Street to watch the fireworks.

2015 is the year that the US stock market will turn exceptionally bullish. The Aussie should follow, aided by a falling Aussie dollar and positive investor sentiment. I wouldn’t be surprised to see the Aussie dollar trading at 75 US cents sometime next year.

A fortnight ago, I explained to you the fundamentals driving this US stock market bull rally. We’re in the midst of a tremendous government bond bubble. 2015 will be a year when you see a GIGANTIC shift from debt to equity markets.

Governments are bankrupt all over the world. Europe is a basket case and is driving this debt to equities shift. France is bankrupt and will default (or delay payment) on its debts within the next three years. Portugal, Italy, Greece and Spain will also default on their debts.

The European Union (EU) is falling apart. It’s absolute chaos over in Brussels. The UK believes that it’s been treated unfairly and is disputing an unjust £1.7 billion tax bill and immigration policy. Brittan’s Prime Minister David Cameron has had enough. Cameron said that he’s ready to lead the UK out of the EU. Multiple UK politicians support this decision.

It’s not just the UK that wants out.

Some Italian politicians want to put a referendum to the people to get out of the euro. Scotland tried to separate from the UK because it felt unfairly done by. Catalonia wants out of Spain and, importantly the euro. And now former French president Nicolas Sarkozy has come out of retirement to make a bid for the presidency for the second time. He wants the EU to hand back half of its powers and has had enough with Brussels’ dictatorship.

Brussels is out of control and needs to be reined in. Their members have no real democratic check and they don’t represent the people. To make things worse, they aren’t even voted in by the people.

The EU is falling apart and this is destroying the euro.

The euro is a flawed currency, set up to benefit politicians. And the currency is telling the story better than any mainstream media sources. For this reason, keep watching the US dollar/euro relationship. As the US dollar strengthens against the euro, you’ll know that the cracks within the EU are growing wider.

European countries fighting about power and overspending are a huge sign that the global financial system is about to fall apart. The bickering between politicians will only escalate next year.

If the UK makes its decision to formally leave the European Union, it will be the writing on the wall for Europe.

Keep in mind that this is a government bond bubble.

Governments are bankrupt and won’t look after you in the future; plan to look after yourself. They think they can fix any problem by raising taxes, increasing capital controls, and tightening regulation (like trying to regulate the internet). This is killing growth and driving unemployment higher.

The smart money is selling bonds and buying equities. I’ve been recommending quality resource companies in Diggers and Drillers that should outperform in the coming bull market.

2015 will be a year when punters hunt for yield.

Gold doesn’t offer yield.

When gold was trading at US$1,350 per ounce in early August, I explained to you how it’s falling to US$931 next year. It’s now trading at US$1,168.50 per ounce. I’ve shown Diggers and Drillers readers a detailed monthly analysis on gold and silver. If you’re interested in knowing where gold is heading in 2015, click here.

The only game in town is equities.

Have a look at the chart below. It tracks the Dow Jones Industrial Index. Each bar represents one week.

Source: Diggers and Drillers;

The chart shows you that the Dow Jones has been in a strong bullish uptrend since 2011. The blue channel lines have held the Dow’s trading pattern relatively well over this time period. Once the DOW breaks above the upper blue channel on a weekly close, it’s game on for the 2015 equities bull market.

We could still be a month or two away from this happening.

That said, the Dow Jones closed higher last week at 17,828 points. Crucially, it closed above the purple resistance line, which has contained much of the 2014’s trading.

We’re now looking at what I call a ‘hop, step and jump move’.

What do I mean by this?

We could be looking at hopping off the now purple support line, stepping onto the green trend line (17,900 points this week), and jumping off the blue channel line sometime in December (18,260 points). And if you do see the jump from 18,260 points, this would be very bullish for 2015.

Realistically, you could be looking at a rally towards the 18,150 point level by mid-December. The question is whether the Dow Jones is about to wake up from its coma.

Short term, it’s still likely that the Dow will see some form of correction.

Major support exists around the 17,150 points level. This is shown by the red horizontal line and represents a minor 3.7% fall from this level. But if the Dow sees a close below this on the weekly level, we could see a return to a major correction and fall towards the 16,500 level, at worst. This would be a 7.4% correction.

Either way, the fundamentals are there to back the Dow going higher into next year. This journey will see both ups and downs. Although sometime soon, you’ll see an explosive blast off to the north.

The bottom line is that the Dow is making a very bullish set-up for 2015. The Aussie market should follow.

Jason Stevenson
Resources Analyst, Diggers and Drillers

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Jason Stevenson

Jason Stevenson

Jason Stevenson shares his extensive knowledge of Australia’s mining sector as Markets and Money's dedicated resource analyst. Whether it’s iron ore, gold, copper or lithium, you can rely on Jason to give you in-depth analysis of the biggest and most important sector of our economy. Jason provides in-depth research to Resource Speculator, Australia’s premier resource investment advisory.

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