The Dow Industrials ended the week with an 800-point Whoopee Cushion bounce that recouped two-thirds of a 1300-point loss suffered days earlier. The swoon, exhilarating as it may have seemed to traders, will do little to brighten an economic picture that has gone from boom to gloom since mid-summer. One might think that the dark cloud of recession over China and Europe would have caused investors to lower their expectations for the U.S. economy. However, evidence that they care even a little about a global slowdown was nowhere to be found on Friday. Shares were up across-the-board, with the S&Ps tacking on a 40-point gain and the FAANG stocks in the rapacious grip of trade-desk madmen. Short-covering provided nearly all of the buying power, as it nearly always does, warning bears still on the sidelines to stay put for the time being.
We had confidently expected the bounce to come from lower levels — specifically, from a 25,363 ‘Hidden Pivot’ target in the Dow that had looked certain to be achieved. Alas, the forecast seemed to miss by a not-so-trivial 380 points when the Indoos trampolined off 25,743. The jury is still out, however, since 25,363 will remain a valid price objective unless the rally exceeds 27,303. But it is usually a bullish sign when downtrending ABCD correction patterns fall short of their ‘D’ targets, as may have occurred here. Moreover, there is no reason to think that a deepening global downturn, impeachment mayhem and signs of a top in the U.S. economy will impair buyers’ bad judgment. For at the end of the day, the rally is not being driven by bullishness, but by urgent short-covering, a world awash in credit money, entrenched institutional mindset and a lack of high-beta alternatives.
Love That Bad News!
Although short-covering was the technical reason behind last week’s oversold bounce, the news media served up an explanation of its own that we can laugh at as we might the emergence of twenty clowns from an Isetta. So what was on investors’ tiny, febrile brains that might have justified their week-ending exuberance? Why, the prospect of more Fed easing, of course! Manufacturing, capital investment and consumer confidence falling off a cliff? No problem. As long as the securities world’s most useful idiots continue to believe that more easing is coming, bad news will be greeted as good news. You say the Fed governors have promised no such thing? Well, they don’t need to as long as Powell, when addressing his masters on Wall Street, remains on his knees.
Concerning the technical picture, we are still literally banking on Apple shares to tell us when the fat lady is ready to sing. The stock has an outstanding rally target at 243.68 (slightly revised from the 242.48 given here earlier) that looks very likely to be achieved. As long AAPL keeps progressing toward it, the ten-and-a-half-year-old bull market will endure. Yes, this is at odds with the prediction above that the Dow will fall to at least 25,363. But because I am much more certain about Apple’s bullish chart than the Dow’s bearish one, I’ll place my bets on the former for now.
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