What a move markets made this week! After looking like they were rolling over (again), breaking below 25,000 on the Dow Jones Industrial Average, stocks rallied as if someone lit a fire under them.
Of course, that someone was the Federal Reserve.
But we’re not out of the woods, not by a longshot.
In fact, this rally just might be a “dead cat bounce” – a Wall Street saying that means a temporary recovery from a prolonged decline, based on the idea that even a dead cat will bounce if it falls far and fast enough.
So, this is your warning: beware the latest rally.
The Party’s Almost Over
First, let’s talk about the Dow.
What an incredible run it had since 2009. Over the decade, the Dow’s gone from 8,000 to just below 27,000 at its peak in October 2018. That 19,000-point run is a whopping 237% gain.
While for the most part the run-up was smooth, there were a few 2,000-point dips along the way. But as the average got higher and higher, those 2,000-point dips became less and less in percentage terms.
What’s most noticeable in the long run higher was what happened after the presidential election in 2017. The Dow rose parabolically, at its steepest ascent in 10 years, from November 2017 through December 2018.
That almost yearlong tear higher was extraordinary coming just as many investors and analysts thought the bull market was long in the tooth and about out of gas.
Since then, the Dow’s had a tough time of it, with 2018 being a particularly choppy year – and the period from October to December, in particular, being a total nail-biter.
The jagged action and drop from October to December was the worst point loss for the Dow since 2009.
As far as choppy and jagged, after reaching its all-time high of 26,951 last October, the Dow fell about 2,000 points into early November, rose parabolically through mid-November, rising back above 26,000.
Then, it dropped by the end of November to almost test 24,000, and then got back up to almost 26,000 again. Then, the venerable Average proceeded to fall almost 4,000 points, breaking below 22,000, and making the peak to trough slide almost 20%.
That’s when the Fed, sometimes referred to as the “Plunge Protection Team,” stepped in to save the day and the Dow.
So, what happened next? An even greater parabolically insane rise back above 26,000.
Then, as has been the pattern lately, starting in May, we began to roll over again.
And in stepped the Fed, again.
This week’s rally, with some solid momentum, could see the Dow back above 26,000.
And it better.
Because if this latest rally fails, if it’s a “dead cat bounce,” if the Dow can’t hold the 25,000 level and, heaven forbid, breaks below 24,000 again… the party’s over, and the Great Bull Market is probably dead.
And when or if it dies, your investments, as they stand now, could be at serious risk. And even if this isn’t the moment when another serious crash, harking back to October-December 2018, happens, you’re going to want a survival guide. Click here to learn how you can protect yourself and your money, no matter what happens.
As much as the Dow has shown resilience, the Nasdaq Composite and the Russell 2000 are stuck.
While you watch the Dow’s levels, keeping in mind 26,000 on the upside, and 25,000, then 24,000, on the downside, I’ll keep an eye on the Nasdaq and the Russell.
Next week, I’ll tell you what’s really going on with those two indexes, what they’re saying about the future of equities across the board, and what levels are critical to watch.