It’s time to wake up, folks.
The US Dow Jones Industrial Average is rocketing higher.
The world’s most followed stock market index hit 21,000 points last week. It was one of the quickest 1000-point moves in history.
That’s big news…
21,000 points is a major psychological level. It feels like only last week when we were talking about the Dow breaching 20,000 points!
The prospect of the Dow Jones — and the Aussie stock market — moving substantially higher is strong.
Stocks appear to be pricing in another US rate rise, which is attracting more capital into the market. More punters are also starting to believe that President Donald Trump will be good for the stock market. The reality of his campaign promises — including boosting fiscal spending and cutting taxes — appears to be hitting home.
That’s good news if you are a stock investor. If you’re not, there’s still time to make money from this bull market. There are massive potential gains left on the table…as long as the stock market holds up.
I’ll explain below…
The stock market bull has its horns out
To start, check out the table below. It shows the quickest 1000-point moves for the Dow Jones since it breached that threshold back in 1972:
[Click to enlarge]
The Dow closed above 20,000 points a few weeks back. That marked the second fastest 1000-point run on record. It took only 42 days.
That sounds good. But the latest effort was a sight for sore eyes. The Dow Jones surged 1000 points in 24 days and matched the fastest pace on record, when the market soared from 10,000 to 11,000 points in May 1999.
Talk about an ominous record to equal! The tech bubble peaked a few months later.
Of course, there are plenty of people warning that history will repeat. That should be expected with the majority taking a bearish view on stocks.
The reality is that the market continues to make new highs…something we shouldn’t ignore.
What should you do now?
Rather than trying to guess the unexpected, it’s time to succumb to the trend and go with the flow. Larry Hite — a successful hedge fund manager — once said, ‘If you don’t bet, you can’t win. If you lose all your chips, you can’t bet.’
The quote rings true today. If you sit paralysed with fear and don’t buy any shares, you won’t make a dollar.
As the market moves higher, each 1000-point gain becomes less important. It becomes smaller — and less meaningful — on a percentage basis. For example, the recent jump to 21,000 marked a 5% rise; the move from 19,000 to 20,000 was a 5.3% surge. The leap from 10,000 to 11,000 equalled a 10% rise.
The bottom line: Embrace this rising market by joining it.
The bullish calls are arriving
Brad McMillan at Commonwealth Financial Network — a privately-held broker in the US — shares my bullish view. Market Watch reported his view on 2 March (my emphasis added):
‘In a note to clients, McMillan asks the obvious: Where does the Dow go from here, after cracking that 21,000 ceiling?
‘Given stocks are in uncharted waters, he looks for a steer in the Shiller’s CAPE ratio, which compares equity prices with earnings over the past 10 years to gauge frothiness in the market.
‘He concludes that if markets follow the pattern of 1999, they could rise nearly another 60%. That would bring the Dow to over 30,000, and the S&P 500 above 3,500. Even if markets “just” went to 1929 levels, the Dow would top 24,000 and the S&P 500 move past 2,700, the Commonwealth financial chief says.
‘“These are the next limits, and the only real technical ones, for the markets. We could have quite a bit of upside left to go,” McMillan says.
‘“In the short run, there’s no reason markets can’t keep going, and we should enjoy the ride. It may end up being even better than we now think,” he said.’
McMillan believes the Dow Jones will hit 30,000 points.
That’s possible at some point later in the year.
The current price-to-earnings (P/E) ratio — a valuation metric — stands at 27.93. In other words, if you bought the entire market, it would take 27.93 years to get repaid at the current rate of earnings. As McMillan points out, that’s higher than it’s ever been…apart from 1929 and 1999, when the P/E ratio hit 32.56 and 44.20 respectively.
You can see this in the chart below:
[Click to enlarge]
The market seems expensive. But, compared to historic levels, it’s not out-of-this-world expensive. It could surge to 30,000 points this year. But, to understand where the market is going in the near term, let’s turn to the technicals.
The Dow Jones daily chart shows the bull market rally since Trump was elected as US president on 8 November:
Source: tradingview.com; Resource Speculator
[Click to enlarge]
The bottom pink uptrend line connects the lows of the rally. The market pulled back to bounce off this level at roughly 19,800 points on 30 January before blasting higher. The market needs to close below this trend line to warn of a decent correction. That level stands at roughly 20,600 points this week.
Mark that number in your diary…
The middle pink uptrend line is a parallel of the bottom pink trend line. It was drawn from the rally’s initial peak. This uptrend line has acted as strong resistance for most of this rally. The market has been unable to conclusively break out above it. For example, the market hasn’t been able hit the middle pink resistance line during this rally. Resistance stands at 21,400–21,500 points this week.
The upper pink uptrend line also shows a parallel of the bottom pink trend line. It’s drawn from the initial December high. If the Dow Jones breaks out above mid-level resistance, it could move towards the 22,000 level. Assuming it clears that threshold, we could hit the 22,300 level by April. That would likely mark the fastest 1000-point move in history.
The bottom line: If the market pulls back to 20,600 points or slightly higher, consider buying some shares. Only a closing below that level would warn of a serious correction. That doesn’t look like happening soon.
Editor, Markets and Money
PS: Did you know there’s a sector of the market trading under the mainstream radar that could more than double your investment in a matter of weeks? I know, I know. When something sounds too good to be true, it usually is. But I’ve seen what the best stocks in this sector are doing…and it’s remarkable. So remarkable that I’ve already recommended subscribers of my advisory service Resource Speculator sell two stocks I tipped only last month for gains of 172.7% and 112.1% respectively. This is one hot sector, and I’ve got three more stocks that could surge hundreds of percent in a matter of months. So what are you waiting for? You can get all the details here.