The Dow Jones Industrial Average may be heading toward 32,000, according to one measure that often works out.
Please note the following:
• When the Dow Jones Industrial Average was at 16,000 points, I was among few who publicly called for the index to hit 30,000. Subsequently, I have repeated the call several times. As an example, please see “Here’s the case for Dow 30,000 in Trump’s first term.”
• The Federal Reserve on Wednesday didn’t cut official interest rates but took a dovish stance by saying policy makers would reduce rates if needed. Would any sane person have expected Fed to say anything different? However, the market now thinks there’s a 100% certainty of rate cuts.
• The market is optimistic about a U.S. trade deal with China when President Trump meets with President Xi at the G20 meeting June 28-29 in Osaka, Japan. At a minimum, the market is expecting a positive spin even if a deal is not reached.
• The chart shows the Arora buy signal, which has now turned out to be the cycle low.
• The stock market often, but not always, shows symmetry. This provides a good avenue to define measured targets.
• For the stock market, the first target is Dow Jones Industrial Average 29,000.
• The second target is Dow Jones Industrial Average 32,000.
• In absolute terms, the stock market is expensive on a fundamental basis. However, stocks compete with bonds. If interest rates fall further, at least in theory, higher valuations for the stock market can be justified.
• So far, investors seem to be putting new cash in the perceived safety of large-cap tech stocks such as Amazon
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Be bullish but cautious
It is worth repeating what I have said before. There is a type of insanity among central banks and politicians. It starts with the bond markets and follows through to the stock markets. Let’s bring some common sense to the forefront. Is there a free lunch here? The answer from politicians, central bankers, stock market permabulls and mom-and-pop investors is a resounding “yes.”
What to do now depends on your thoughts about this free lunch. I, for one, do not believe in free lunches. The debt bubble is getting bigger and will eventually burst. Many investors will get badly hurt. Think of it, instead of a lunch, as a party where almost everybody is drunk and all the drunken people claim that nobody is drunk. I would suggest to investors that they enjoy the party but be aware of the risks ahead.
At The Arora Report we translate this into positions to buy, sell and hold through the ZYX Asset Allocation Model with 10 inputs. (Please click here to see the 10 inputs.) The model produced a gain in 2008, the last time the bubble burst. And the model gave an aggressive buy signal in March 2009 and has stayed bullish since then. But at times, like now, we’ve had defensive measures such as proper allocations to cash and hedges. Moreover, portfolio selection is important to control risks.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.
Source : MTV