WASHINGTON, January 26, 2017 – Wednesday’s big stock market rally hit everyone by surprise, or so it seems. The Dow Jones Industrial Average (DJIA) leaped over the magical 20,000 barrier and stayed there to the close for the very first time ever, exciting the many technical analysts who’d begun to think that fiscal wall was becoming impenetrable, just like the one President Trump is hell-bent on building on our southern border.
The Dow has made a little headway today as well, up some 30 more points as we head into the final hour of trading.
The broader based S&P 500 and the tech-heavy NASDAQ, which also surged on Wednesday, are taking some of that back in Thursday action as many stocks have decided to go sideways today.
It’s clear, however, that even the most bullish of traders are getting nervous, so we might see averages stall right here again as they await the next exciting episode in this week’s post-Inaugural stock market Trumpathon.
Mr. Market is a tricky fellow to follow as the Maven has repeatedly learned to his sorrow over the past decades. That’s why you have to remove most emotion when you’re buying or selling, lest you get carried away and lose everything. That’s certainly what the House wants when you’re gambling away your hard-earned money in Las Vegas. Lest you find it difficult to imagine, it’s not much different on Wall Street.
Seasoned traders and investors have to laugh at all the “fake news” flapdoodle obsessing the one-time major media goons. Fake news is a tradition on Wall Street, as stories and rumors are planted routinely whenever markets hit extremes like the one we may be hitting now. A little panic here, a nasty rumor there, and entire markets can violently reverse course, at least for a day or two, as small traders and investors are fleeced again and again by the big boys who plant this stuff.
This is all illegal, of course, but the SEC, at least over the past 8 years, hasn’t seemed to care much. For that reason, the rumor mill—i.e., “fake news”— is what we’ll have to watch out here as stocks hit new highs without a lot of corporate earnings to support them. So the Maven is issuing a BOLO for fake market news right here and now.
On the other hand, the VIX, that classic measure of market volatility, is currently sitting at an extraordinarily low level. As ZeroHedge observes,
“… many traders have asked does the VIX plunging to near record lows below 11 – a place they have been only 1.6% of the time since 1990 – have any predictive value for stocks.”
The answer is, essentially, “Who knows?”
That other key indicator (at least for us), the McClellan Oscillator, is showing us at overbought levels, meaning there should be a pullback shortly. But the Oscillator is not at extremes, and, as Murphy once observed, “Everything takes longer than you think.”
Our chart services are showing nearly everything is bullish right now, except, as usual, for interest rate sensitive bond equivalents like utilities and telecom stocks. Since they tend to follow bonds and since bonds tend to go down when the Fed gets itchy interest rate trigger fingers, these have been a bit wobbly of late, even though many carry excellent yields.
Right now, buying at these levels could be a bit treacherous. Markets, too, are still nervous about the new Administration in Washington, which is, for better or worse, behaving like no Administration ever has before. Businesses seem for the most part to be liking what they see. But Trump’s actions this week are mostly tactical or are actions that a President can take via executive order, as we found out to our sorrow over the past 8 years.
However, we’ll need Congress to get its act together—relatively easy in the House, but tough in the Senate where bitter Democrat partisans have been refusing to allow Republicans to move legislation since the Gingrich takeover of the lower body in the 1994 elections, something worsened during the disastrous Senate rule of the despicable Harry Reid.
Once the gloss is off the new administration in about a week or so, we should see what’s really going to happen. And that’s likely to give us a cue as to where these crazy markets will be going over the next quarter or two.