{"id":62860,"date":"2014-10-31T02:07:44","date_gmt":"2014-10-31T06:07:44","guid":{"rendered":"http:\/\/countingpips.com\/?p=62860"},"modified":"2014-10-31T02:07:44","modified_gmt":"2014-10-31T06:07:44","slug":"the-dow-jones-the-significance-of-17000-points","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/10\/the-dow-jones-the-significance-of-17000-points\/","title":{"rendered":"The Dow Jones: The Significance of 17,000 points"},"content":{"rendered":"
October 31, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

If you’re a regular Money Morning<\/em> reader, you may recall the article I wrote on 29 August. That’s when I warned you that my initial analysis<\/a> indicated the market would correct from September 1 into late October. After seeing close to a 10% correction since September 1, the ASX 200 has now bounced back just over 6% in the past couple of weeks.<\/p>\n

This is good news…but what now?<\/p>\n

Before I answer this question, I want to reflect on what I wrote to you last week:<\/p>\n

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‘Tonight’s close on the Dow Jones will set the scene — the Aussie will follow. <\/em><\/p>\n

‘I see the market correcting into November and this week’s bounce as temporary<\/u><\/em>. Stock markets have been a blood bath since September. They needed a cooling off period — hence this week’s bounce.<\/em><\/p>\n

‘I still have my eye on 17,000 points — this is the most important level in the market.<\/u><\/em> It’s unlikely that it will happen tonight; next week is a possibility<\/em><\/u>. The next phase of the bull market will start when the Dow Jones bounces strongly from this level.<\/em>’<\/p>\n<\/blockquote>\n

Well, the Dow Jones<\/strong> backed up last week’s bounce with another great run this week. And, it closed above 17,000 points for the first time in a month on Tuesday. It’s now sitting at 17,195 points — momentum is relentlessly bullish. <\/p>\n

What I find it interesting is that the market broke through 17,000 points after<\/em> the world saw that 20% of banks failed European banking stress tests — stress tests which uncovered that another €135.9 billion of bad debt will likely never be repaid. European banks now hold bad debt totalling over<\/u><\/strong> US$1 trillion<\/strong><\/u>.<\/p>

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I’m wondering whether we’re seeing an early stage transition from debt to equity markets. <\/p>\n

Stress tests, by the way, are an absolute joke. Europe is in a deflationary environment. And the stress tests didn’t even consider a possibility that prices will fall in the years ahead (i.e. deflation). <\/p>\n

If you are a business with falling revenue, or a household with declining income, it becomes more difficult to repay your debt. Governments can be caught in the same trap, because if prices and incomes fall, so does tax revenue. <\/p>\n

In this case, it’s likely that European banks have significantly higher<\/u> bad debt positions than what’s been reported. <\/p>\n

The bottom line is that debt markets are dangerous. And this is bullish for equities markets. <\/p>\n

That said, although the market has bounced, a November correction is still a risk. <\/p>\n

Have you heard the saying, ‘sell in May and go away’? Well, December 31 is the end of the financial year in the US. That means many hedge funds will unwind their worst positions, and we should see some tax selling in November. <\/p>\n

This year’s tax selling season comes at a great time. The US Federal Reserve<\/a> has completed its money printing program — for now anyway. <\/p>\n

The next fortnight will be a test. It will be interesting to see whether the Dow can sustain its upwards momentum against any selling. <\/p>\n

This event is<\/u> possible. <\/p>\n

On the other hand, US mid-term election results will be out mid-next week. It’s expected that the Republicans (friendly towards the banking sector) will gain control of both the House and Senate.<\/p>\n

If Republicans win control of both chambers of Congress, President Obama (Democrat) will have a hell of a time trying to lead the country. Obama’s popularity rate is at an all-time low of 44% — Obamacare has turned out to be a nightmare. Financial markets, especially the banks, will see it as good news if Obama has less influence on passing law.  <\/p>\n

Now let’s take a look at the technical bigger picture. The chart below tracks the Dow Jones Industrial Index. Each bar represents one week.<\/p>\n

<\/a>
\nSource: Diggers and Drillers; Freestockcharts.com<\/em>
\nClick to enlarge<\/a><\/em><\/div>\n<\/p>\n

Understand that we’re in the midst of a massive<\/u><\/strong> equities bull market. And there’s a long way to go yet until we get to the top. <\/p>\n

The chart shows you that the Dow Jones has been in a strong bullish uptrend since 2011. You can see this by looking at the blue upward channel lines (long term channel). The market seems to be tracking the bullish channel pattern that began in 2013. You can see this by looking at the black upward channel lines (short term channel). <\/p>\n

I’ve been harping on about 17,000 points for a while now. 17,000 points is the MAJOR support and resistance level for the Dow Jones. You have to watch this level carefully.<\/p>\n

A fall below 17,000 points could indicate a return to another correction. And a fall below 16,600 could indicate even lower lows on the Dow Jones. A sustained bounce, with momentum, above 17,195 points into late November would be a good indicator that the next phase of the bull market has begun. <\/p>\n

We have a big month ahead. <\/p>\n

Volatility should start to rise again after the 4th of November (US time) — this is when the election results are out. This could see the market press higher to the top of the short term channel to roughly 17,415 points, and the ASX 200 could easily see 5,600 points. <\/p>\n

But keep in mind, the US didn’t truly<\/em> start its recent correction until the third week of September. Thus, the November correction could come late next month.<\/p>\n

Even if the market does get to 17,415 points, I’d expect to see a pull back as tax selling season takes place. Adding to this, the Dow is up more than 6% over the past 15 days. This is a big move for a short period of time. <\/p>\n

Some hedge funds will likely take money off the table. And this should lead to more selling into the second half of November. I wouldn’t be surprised to see the market sell off back to below the 17,000 point level. <\/p>\n

For the above reasons, I can’t — yet — rule out a November correction. <\/p>\n

But make no mistake. Once the market confirms the low, it will turn VERY bullish. I’ve been going on about this for months to Diggers and Drillers<\/em> readers to prepare them for it. Debt markets are dangerous. Next year, you will start to see GIGANTIC capital flows from debt to equity markets. You’ve seen nothing yet. <\/p>\n

For here, there may be another chance to buy stocks<\/a> cheaper in the month ahead… <\/p>\n

Cheers,<\/p>\n

Jason Stevenson+<\/a>
\n Resources Analyst, Diggers and Drillers<\/em><\/strong><\/p>\n

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Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post The Dow Jones: The Significance of 17,000 points<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au If you’re a regular Money Morning reader, you may recall the article I wrote on 29 August. That’s when I warned you that my initial analysis indicated the market would correct from September 1 into late October. After seeing close to a 10% correction since September 1, the ASX 200 has now bounced […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-62860","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62860","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=62860"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62860\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=62860"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=62860"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=62860"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}