President Trump routinely makes authoritative statements about the stock market, as he takes credit for its rise. No other president in history has ever spoken so much about the U.S. stock market.
Now Trump has preordered “Dow 30,000,” though not literally. Given his track record of making statements about the stock market and his tone in taking credit for Dow DJIA, +0.88% 25,000, this is an appropriate characterization. His actual statement is: “I guess our new number is 30,000.”
Trump is not the only one. Wall Street strategists are tripping over themselves to raise their targets for the stock market.
Gurus who were until recently calling for a crash and missed the whole bull market are now turning super-bullish in calling for Dow 30,000. Where were all of those gurus a year ago?
Well, about a year ago, when The Arora Report laid out a scenario for Dow 30,000, I got a fair bit of hate mail; those who do not like Trump could not stand me saying “Here’s the case for Dow 30,000 in Trump’s first term.”
To be fair, the number of hateful emails was small compared to those I received when I gave a signal to sell gold (the trading ETF is GLD, -0.10% ) at $1,904 an ounce and simultaneously a signal to short-sell gold. At that time, everybody was bullish on gold. Subsequently gold fell to under $1,100.
I am used to taking unpopular positions, and that has served investors well in making lucrative gains over the years. But that was yesterday. The key question at this time is what to do now and how to jump on rising stocks safely?
Let us explore starting with a chart.
Chart
Please click here for the annotated chart of Dow Jones Industrial Average ETF DIA, +0.85% Similar conclusions can be drawn from the SPY, +0.67% ETF, which represents the S&P 500 SPX, +0.70% ; the QQQ, +1.00% ETF, which represents Nasdaq 100 NDX, +1.04% ; and the IWM, +0.21% ETF, which represents the Russell 2000 RUT, +0.28% Please note the following from the chart.
• The chart shows the point where the stock market broke out of resistance.
• The chart shows the straight move up and the amount of the move since the breakout.
• When the fundamentals cooperate, charts often show symmetry.
• The concept of symmetry provides us with a way to project a measured target for the future.
• The chart shows the measured target for the Dow is 32,000.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
An important tip
Here is an important, practical tip that may fly in the face of wisdom from some technical-analysis purists. If your goal is to make money, avoid drawing lines and measured targets with a fine tip pen. Instead, consider the equivalent of drawing with chalk on a blackboard. The point is that, typically, there is not much precision. As our track record at The Arora Report proves, investors can dramatically increase their returns by adopting a practical way of thinking in zones and not absolute points.
The fundamental case for Dow 30,000
Fortuitously, the fundamental case for Dow 30,000 that I described about a year ago is still intact. To see the details of the fundamental case, please see a prior article by clicking here.
Unprecedented move won’t continue
The unprecedented move, with low volatility, that the stock market has seen over the past 14 months won’t continue indefinitely. Don’t be influenced by recency bias, which is common among investors.
What to do now
Pay special attention to sentiment, actual earnings vs. whisper numbers, and smart money flows in the market.
Consider focusing on special situations and special strategies. An example of a special strategy is described in “How to potentially get a 30% return in three months with the ‘January Effect.’”
At The Arora Report, for timing, risk control and allocations, we depend on the highly complex adaptive ZYX Global Multi Asset Allocation Model. In plain English, “adaptive” means it changes itself with market conditions. The model is comprehensive in that it has inputs in 10 categories that truly matter. Investors ought to pay attention to those inputs; you can see details here. We simply leave out other data that do not reliably determine the course of the markets.
The Arora Report timing model went to all cash and then inverse ETFs and short positions during the crash of 2008. That not only protected investors but also made large profits for them, while many investors lost half of the value of their portfolios.
The model turned aggressively bullish in February and March of 2009 right at the beginning of the current bull market.
Since then the model has stayed bullish but has often called for hedges. Based on the ZYX Global Multi Asset Allocation model, we answer for our subscribers the key question: “What to do now?” We specify appropriate cash levels and appropriate hedges. Currently the model does not see a crash but advocates protective measures as risks are rising due to overbought conditions of the stock market and the cross-currents described above, among other risk factors.
Please keep in mind that you cannot take advantage of dips in the market and new opportunities if you are not holding enough cash. Investors ought to pay attention to how much cash is warranted based on current market conditions and new opportunities ahead.
Caution
Consider following the guidance in this article to jump on safely. “Safely,” in the present context, means taking less risk relative to simply putting all of your money in an index fund or being heavily concentrated in FAANG stocks. When I ask investors who are overly concentrated in FAANG stocks about diversification, they often claim they are diversified because they also own AMD AMD, -1.98% Nvidia NVDA, +0.85% and Tesla TSLA, +0.62% That is a mistake, as investors put those stocks in the same camp as the FAANGs.
As a caution, it is important to remember that there is nothing absolutely safe in the stock market and losses can occur at any moment.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.
Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.