Rotation INTO The Dow Stocks!

JC Parets
August 24, 2020

JC, What do you mean rotation into the Dow Jones Industrial Average?

This is a bubble!

It can't possibly be the beginning of the Dow's move.

Wait, can it?

Well, despite all the hype about a bubble and the ridiculous rhetoric about a dislocation between wall street and main street, the Dow Jones Industrial Average hasn't really done much the past 10 weeks. It hasn't made much progress at all, even if you include the past 2 weeks of gains. In fact, the last 2 weeks are all the gains since early June.

Meanwhile, the Dow Jones Transportation average has been the leader and broke out above those former June highs a while ago:

Click on Charts to Zoom in

Here's a closer look. Notice the resolution in the Transports. Our bet is the Industrials follow, and this in fact is just the beginning of the move:

I really like this perspective as well. The Dow Jones Utility Average has been the leader since January of 2018. By our work this was a major turning point in global equities. January 2018 is when stocks all over the world STOPPED going up. It shows in this chart.

During this DJ Utilities > DJ Industrials period, it's been a sideways grind, at best, in most countries around the globe. Remember, nothing else looks like the Nasdaq100. That crazy outperformance is unique to what's going on in the United States, and maybe Taiwan (but now we're stretching). The point is, this is arguably a 30 month bear market, or consolidation, or downtrend, or cyclical decline, or whatever your preferred nomenclature might be. The bigger idea is here that we are more likely near the beginning of a new uptrend, than we are near the end of an old one.

Here's the All Country World Index Ex-U.S. still down pretty substantially from those 2018 highs. My bet is that it was NOT a coincidence that it was exactly when the Dow Jones Industrial Average began underperforming the, much more defensive in nature, Dow Jones Utility Average.

Go walk around telling people the stock market is just getting going, this is just the beginning, and pricing in a world that has never been better. I don't think most people will like what you have to say, yet alone agree with it.

I'm seeing more and more new highs. I'm seeing more countries participating, not fewer. I'm seeing more sectors becoming leaders, not less.

So if that's the environment we're in, the Dow Jones Industrial Average should thrive.

What does it look like on its own? Well, it also hasn't made much progress since January 2018. So to argue that this is the beginning makes a lot more sense than arguing it's an end to something.

What we're doing here is calculating the extension levels from both the 2000 peak and the 2007 peak. Its why this 26,600 level was our target, and achieved in January 2018. Now can we move on? Sure, makes perfect sense to me. That 30 months of consolidation was well-deserved after the strength we saw in 2016 and 2017.

So what's the target? If I tell you 38,000 will you get mad at me?

Where do you think we go?

Tell me you think we go lower from here.

JC

 

 

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