Dow 20,000 Already Forgotten

Last week, the Dow hit my longstanding target of 20,000, first given on CNBC’s Squawk Box in 2010 just after I forecast that the Fed’s balance sheet would hit a staggering $5 trillion. If we see 5 consecutive closes above 20,000, the next upside target will be created. Since Dow 20K, it’s been even more Donald Trump and politics on the financial channels. I think the Q4 GDP report is now totally forgotten.

Market sentiment had become a little frothy heading in to Dow 20K and I thought that finally closing above that meaningless milestone would cause an even stronger rush by the bulls to a potential intermediate-term peak. However, it doesn’t seem to be the case. With President Trump’s pen busier than a one-legged grasshopper at a jumping contest, Dow 20K has taken a backseat. Weekend talk shows totally ignored it. Financial media has largely forgotten about it. This is actually a positive over the intermediate-term.

Before offering some downside targets for a small pullback, let’s wait to see where stocks close on Monday. The bulls could try to defend 19,900 although 19,700 looks more solid. Weakness remains a buying opportunity until proven otherwise.

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Dow Breaking Out & Q4 GDP Miss the Last

After hitting yet another one of my upside targets, 20,000, the Dow has yet to pause. Five straight closes above 20,000 will open up new upside targets before the bull market ends.  As you can see below, the Dow has been consolidating sideways since early December. That’s often referred to as a flat top or box. When prices finally exceed the flat top, they oftentimes see a spurt in the same direction.

Although momentum is on the side of the bulls there are a few short-term headwinds which will present themselves if the rally stalls and closes back in the box sooner than later. Should that occur, I would expect a quick pullback to 19,700.

The NASDAQ 100 has been the leading index since late December, yet it certainly looks a bit tired, the same comment I made earlier in the week. Semiconductors look even more in need of a rest and they typically lead the NASDAQ 100. Keep in mind that all I am saying is that stocks may pause to refresh. The bull market is alive and reasonably healthy. Weakness is a buying opportunity until proven otherwise.

Sector leadership remains strong. Semis, banks, discretionary and transports look powerful although they could use a rest. Industrials and materials are also kicking it into high gear. Healthcare and energy continue to lag, but I think they will have their day in the sun after this quarter.

New highs in high yield bonds and the NYSE A/D Line bode well for the bull market, regardless of the next 5-10% move.

Q4 GDP just printed at 1.9% which was below forecasts. I wouldn’t be surprised if that’s the low print Donald Trump sees for a while and the market just shrugs it off.

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What’s SUPPOSED to Happen versus What ACTUALLY Happens

Earlier this week, I mentioned that stocks were coiled up and looking for a big move. Since then, only the NASDAQ 100 has done anything and that was really just on Apple’s earnings beat. Overall, it’s been a very quiet week without any volatility at all. That’s likely to change sooner than later, but unlikely to be today.

As I have mentioned over and over, the post-BREXIT thrust, pullbacks are likely to be shallow as the masses were caught off guard and are now clamoring to buy. Those waiting for a 10% correction will probably be waiting a while unless an exogenous event hits, in which case, they won’t buy anyway!

The government reported that Q2 GDP clicked at 1.2%, well below estimates of 2%. I won’t rehash my long-term theme about the typical post-financial crisis recovery which I have been spot on about since 2009. On a day like this, I always find it instructive to see what’s supposed to have versus what actually happens. Treasury bonds should rally. The dollar should fall. Gold should rally. Crude oil is a toss up.

On the sector front, utilities, staples, REITs and telecom should lead as they are all defensive and provide yield. Industrials, materials and discretionary should lag as they more economically sensitive. High yield bonds should lag.

Let’s watch what bucks what is supposed to occur for signs of change.

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Don’t Believe the Negative GDP Print

Short and sweet as I am traveling today.

Last Friday, the government reported that Q1 economic output contracted by 0.70%. To the casual observer, that smells awfully close to the accepted definition of recession, two straight quarters of negative GDP growth. Stocks barely reacted on Friday and I attribute the weakness to geopolitical news in Europe.

The first quarter has been the worst GDP as far back as the eye can see. The government’s seasonally adjusted data needs to be seasonally adjusted again. They are flat out doing a horrible job! This contraction was actually better than the -0.90% expected and due to the tough winter in the eastern U.S. along with very poor trade data. In my view, you can almost completely dismiss the report as an anomaly.

I am anything but an economist. I do believe, however, that Q2 economic output is going come back very strong compared to Q1 in the 2-3% range and Q3 should be equally as strong. “Strong” may not be the best word, but I think you get my drift.

For further proof of no recession besides the stock market just yawning, look no further than the consumer discretionary sector which is but a whisker from ALL-TIME HIGHS. If the horsepower of our economy is this strong, it is so unlikely to see a “normal” recession without some external shock.

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