The US Dow Jones Industrials Average — the world’s most followed stock market — remains strong. It continues to retest the lofty 21,000-point level.
Yet, despite breaking above 21,000 points earlier in the month, it’s becoming harder by the day. The stock market has pretty much traded sideways for the past 15 days.
The Aussie stock market has been similar. The ASX 200 has struggled to jump over the 5800-point hurdle.
The consolidation indicates that a decent move awaits us. In my view, that move will temporarily be to the downside.
My colleague Vern Gowdie, however, has a stronger take. He believes that a major stock market crash is imminent. And he raises some great points to support this belief. As well as recommending actions you should take today to protect yourself from the implosion he sees ahead. You can check all of that out here.
Nevertheless, more noise about Brexit is about to send major shockwaves through financial markets. That should see the Dow Jones pulling back into month-end. The Aussie market should follow and at least re-test 5600 points.
The Aussie market tends to follow US stock markets — the largest in the world. If the Dow pulls back as I expect, that offers a great opportunity to buy more of your favourite stocks.
I believe any pullback will be a mini-correction at worst, and it won’t last long.
Brexit: Fiction versus reality
The Guardian reported yesterday:
‘The pound has come under a little bit of pressure after a spokesman for Theresa May revealed that the UK PM will trigger article 50 on 29 March. While the timing of the triggering of article 50 comes as no surprise given that May had previously vowed to do so before the end of March, it does show that sterling remains sensitive to Brexit related headlines, even those that are already widely known.
‘While the drop off in the pound isn’t too severe, it was enough to take it into negative territory for the day. It also acts as a reminder that the next two years will likely continue to be volatile for the UK currency as well as the FTSE and UK Gilts, with traders still concerned about the road the country is on.’
The reality is hitting home — Brexit is real. And, in spite of what the mainstream media have portrayed for months now, the ‘end of the world’ hasn’t arrived. Stock markets haven’t crashed, gold isn’t hitting fresh highs, and the British pound isn’t in freefall.
Of course, if you read the mainstream, those scenarios should still unfold in the months ahead.
And most people wonder why they take the wrong side of the trade!
The UK voted for Brexit on 23 June last year. It was a crazy time for punters, shocking many worldwide. The Dow Jones plunged following the vote:
[Click to enlarge]
The two-day selloff (in the blue box above) wiped out US$3.01 trillion of the Dow’s value — the worst two-day paper loss in history, according to S&P Dow Jones Indices.
The dead-cat bounce (a temporary recovery in share prices after a substantial fall) that followed was impressive…
Jean-Claude Juncker, the President of the European Commission, said that all informal exit talks with Britain would be banned until the nation triggered Article 50. That’s the specific piece of legislation that would kick-start the process for the Britain to leave the EU.
Britain didn’t provide much assurance. In fact, it didn’t provide any. British officials said that the nation might not trigger Article 50 for several months. Hence, as shown above, we got that glorious bounce — also in the blue box in the chart above.
Brexit — and the triggering of Article 50 — should officially take place on 29 March. And the FTSE 100, well…it continues hitting fresh highs:
[Click to enlarge]
To some, it doesn’t make any sense. The market is hardly phased. That’s because the result has been priced into the market for months. Fund managers and traders have had ‘time’ to think about their trades, positioning them accordingly. For that reason, you’re not seeing any downward movement in the stock market yet.
Get ready to buy the dip
Be prepared. The mainstream’s probably going to run an ‘alarmist-bandwagon’ campaign soon. Remember, similar to Trump’s election campaign, the mainstream painted a dire picture for Britain heading into the referendum. The International Monetary Fund — the world’s worst forecaster in my view, aside from perhaps the US Federal Reserve — said the country would fall back into recession, costing it hundreds of thousands of jobs.
With the hope of Article 50 being delayed, the media is likely to step up their ‘one-sided’ reporting into 29 March. Expect plenty of doom and gloom over the next fortnight.
As an example, The Guardian reported yesterday (my emphasis added):
‘This is it, then: we are nearly there. Nine months after the UK voted to leave the European Union, Theresa May will on 29 March invoke article 50 of the Lisbon treaty, formally serving notice that it intends to do just that.
‘So as the prime minister kicks off a national tour aimed at reassuring all corners of the country that she will “deliver a deal that works” for them to ensure everyone can “make the most of the opportunities ahead”, what state is Team GB in?
‘The answer appears to be: not so great. The government’s unwavering insistence that Brexit must mean leaving the single market and customs union has unleashed a furious Scottish rebellion, as well as rumblings in Northern Ireland and Wales.’
Indeed, talk about a bleak future!
More of these comments will probably drive the market lower…temporarily. Take a look at the US Dow Jones Industrials daily chart:
Source: Tradingview.com; Resource Speculator
[Click to enlarge]
The stock market has…until yesterday…remained in an uptrend since the US election. It bounced off minor resistance (the middle pink line) and couldn’t break out to major resistance (upper pink line).
The lower pink uptrend line shows the main support, connecting the major lows. The market has consolidated sideways towards support, and broke down yesterday. The Dow Jones closed at 20,668 points. That’s below 20,777 points — the low during the latest sideways (consolidation) move on 9 March — signalling that it’s probably going lower.
The main target is the blue horizontal line at 20,151 points. That acted as last-level resistance before the market broke out higher last month. In the future, it should act as first-level support.
The bottom line: Look for a pullback before buying your stocks.
Editor, Markets & Money
PS: I’m confident that you should think of the coming ‘mini-correction’ as a major buying opportunity. Look to buy your favourite stocks near the low. If you back the best stocks — like last week’s Resource Speculator stock tip — you could make a lot of money during the bounce that follows.