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The Latest Stock Market Rally: So Far So Good – Or Is It?

0 | By Shah Gilani

Nothing sets investors’ hearts racing like a 1,500-point rally in the Dow Jones Industrials Average in less than two weeks.

Unless, of course, hearts are pounding because the Dow’s down almost 2,500 points in less than a month.

Welcome to the last couple of weeks and months. The market’s seen both extremes twice since October.

Instead of trusting their racing hearts, investors should be using their brains to ask themselves, why did markets rally bigtime twice since October? Why did stocks tank twice before they rallied? Is the coast clear or not? And, are there any signposts they need to be watching?

Here are the answers to those questions…

Not So Fast

One reason markets rallied twice after falling twice lately is that we’re still in a long-term bull market.

Without a doubt, the almost 10-year old bull is long in the tooth and weakening with age. But, for the long-term uptrend to be officially broken, in technical terms, the Dow would have to fall to 20,000.

That’s a 22% drop from where we closed yesterday.

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On a shorter timeframe, three years, the uptrend’s been broken. That’s where more investors are focused.

Now, 24,000 is the Dow’s first line of defense, and 23,500, or about 9% lower than where we closed yesterday, is a critical level for the Dow – below which is a scary place for investors to contemplate.

While it’s great that stocks didn’t crash and burn – rather, they rallied quickly after their two ugly tumbles since October – it’s more important to understand why they tanked in the first place.

And are those conditions still weighing on equities?

The answer is stocks tumbled because the fundamental fuel they’ve been driving higher on is being diluted and will eventually be watered down to the point of contaminating the market’s gas tank.

I’m talking about central bank stimulus: Trillions of dollars of free money and low interest rates to keep that free money spreading around the economy and chasing stocks higher.

On the heels of the Fed raising rates, the market got a much-needed backup push higher from tax cuts last year.

Now, investors are looking at the effect of tax cuts diminishing going forward and the underlying prospect of rates pushing higher.

The latest rally off another lower low for the Dow started last week on account of news flow.

First, the Fed appeared to back off their presumed multiple rate hikes in 2019. Then, investors cheered the dinner between President Trump and Xi at the G20 in Buenos Aires that broke trade tensions between the U.S. and China, at least for the time being.

So far so good, right?

Well, maybe not so fast.

We’re definitely not out of the woods, and we’re a lot closer to breaking down than we are to rallying higher.

The bad news for the market is the Dow’s been making lower highs, meaning each time the benchmark rallies it can’t get above where it previously got to on the last rally.

That’s a bearish sign.

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And, stocks made lower lows when they faltered. That’s a bearish sign.

So, the signposts are bearish, and hope and news flow are what the market’s been rallying on.

If we can’t make a higher high on this run-up, we’re in trouble.

If the Dow heads back down to test its double-bottom lows around 24,250, it might be time to check your gut and batten down the hatches.

And with the holidays hot on our heels, that news is the opposite of good.

If you’re like many investors, you’re probably nauseous from watching your portfolio slip and slide and climb back up again like some never-ending rollercoaster.

It’s disconcerting because you probably feel like you can’t keep up with what the market’s doing. But, I can show you a way to make you thousands of dollars richer, by betting on the likelihood that a stock could dip – and it usually does.

My proprietary method has already worked in favor for tons of folks – but you don’t need me to list them out here to prove it to you.

You already know what I can do.

You’ve just got to take the plunge yourself.

Check it out here.

Sincerely,

Shah

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