Trump trumps the bears
With the Dow up 250 points already as I write taking it into new all-time highs (again!) following the President’s remarkable speech before Congress last night, I am starting to seriously wonder if history will place him among the pantheon of excellent Presidents! And what a lump that would be to swallow for the vast majority of conventionally educated leaders of government and commerce – and virtually all of the entertainment industry!
While he was running for the office last year, I knew that anyone who viewed his often outrageous statements in the conventional way would be lead up the wrong track. And all of those (mainly young) street protesters around the world just after his election were in a knee-jerk linear response mode. They failed to see the subtle change in direction the world is taking.
The mood of the electorate was changing. No longer did they want ‘more of the same’ identikit politicos, such as Hillary. The USA was running into a brick wall – the QE funny money the Fed has foisted on the nation stopped at the canyons of Wall Street with little or no benefit for the average Joe. Conventional politics was failing them. And they have plenty of votes!
In fact, the mood was ripe for someone like Trump – a non-politician with immense drive – to sweep into the vacuum and take charge.
But did anyone really believe him when he wanted to lower taxes and ramp up infrastructure spending (and build a Mexico wall?)? Logic was against it: Imagine what that would do to the already-ballooning national debt. But I guess the professional money managers did – they have been pushing stock prices (of a select number of issues) ever higher since the evening of the election on November 8!
The big question most of us have is, of course – is this rally for real or are shares in a bubble that will soon pop as investors come to realise that all of the goodies he promised were figments?
Conventional believers in the ‘fundamentals make the market’ theory are naturally highly suspicious of the Trump Rally – and seekingalpha.com is full of articles of such nature. They show that corporate profits have been falling for many quarters, so it must be an ‘irrational bubble’.
Maybe Janet will soon come out and proclaim investors are showing an ‘irrational exuberance’, as Greenspan prematurely did in 1996 in the face of the dotcom bubble (which popped four years later). If so, and if history is a guide, stocks have 3-4 more up years!
But I have a different view. The rally is very real (they always are because real trades are being made)) and reflects not any fundamental economic developments but the extremely positive social mood that is currently out there. OK, it is a mania. Just one indication of this mood was the very conciliatory and non-confrontational speech Mr Trump gave last night. OK, it is politics, but that was a sea change from his erstwhile pugnacity. He did not once mention ‘draining the swamp’ at all! And he got several standing ovations.
Of course, under the surface there is anger in society and that helped propel him into the White House. But so far it is contained as the electorate stand back and see how things pan out. But when that anger rises to the surface, stocks will be declining.
Remember just after the crash of 2008 when bad economic news was good for the market? It seemed no amount of poor data could dent the stock market rally post-2009. This was a pure example of the principle that the news does not make the market. It never does. It is social mood that determines whether stocks go up or down. And the mood right now is positive.
Sadly, I have found no thermometer invented that takes the temperature of social mood. We must infer it from our own observations of the world around us in a non-partisan way. Of course, we have the sentiment measures of various sectors of the investment community that I often refer to.
These are very useful in highlighting markets that are dangerously one-sided, as the stock market is currently. But that is no guarantee that prices will not go much higher. Many point to the record number of up days in a row as if that is good reason to short the market on the untested theory that “it just has to have some down days now”. No it doesn’t. There is no law that says the rally must end because of the record number of up days.
But when this upmove does end, it will mark the end of a wave 3 within a larger fifth wave, leading to a dip in wave 4 before new all-time highs are attained
Remember the Barron’s 30,000 Dow cover? Maybe that forecast is not so silly after all!
Will Wheat pop?
The US ags market is one I first traded many years ago (my very first trade was in corn futures) and so have a bit of a soft spot for it. They were the very first modern futures markets and the Chicago Board of Trade was the first such exchange where farmers and processors alike could hedge their requirements and production for wheat, corn and soybeans, and specs could attempt to make profits from moves in prices.
Lately, I have become interested in them again and have recommended trades for members of my VIP Traders Club who now hold long positions.
All of the ags are subject to weather and with a weather scare in a year of low production, prices can skyrocket.
Here is a beautiful pattern in the wheat – what I call the Wheat Wedge
This multi-year pattern is a classic formation that usually precedes a major move in the opposite direction – once the market can break clear of the upper blue wedge line. Theer are multiple touch points on both lines, so making them highly reliable of lines of support/resistance.
But since the $9.50 high in 2012, excess global production has heavily pressured prices so that a low of $3.75 was hit in early December. That is a big move. But now prices are moving up.
So with the market showing signs of breaking out of the wedge, I am looking for a decent bull run this year. My first major target is in the $6.50 area.