Dow Jones bull: Where’s the top?

Exactly a year ago, Dow Jones benchmark was trading at 19,800 level when Presidential candidate Donald Trump contested eagerly against Hilary Clinton.

Analysts predicted the likelihood of triumph for Clinton who has been receiving broad favour among the US media and voters. In fact, many financial experts sneered the unlikely victory of Trump would only plummet the American economy.

When trump won the national polling and became the 45th President of US, Dow Jones Futures market plunged on that day but quickly recovered into steadiness within three days.

The fear of jittery remained in stock market amid widespread unhappiness for Trump’s victory. Federal Reserve chair Janet Yellen voiced her impending resignation in response to the menace of Trump’s policy during his rally.

Nevertheless, Dow Jones benchmark immediately conquered the 20,000 major level in the following month that caused many short traders off guard.

Moving into the second quarter seasons, Trump emphasised numerous times of his tax cut reform that would create huge cash liquidity into the market and nationwide infrastructure building in order to stoke inflation.

Despite many scandals involving the Russian operatives to his Presidential winning, personal sex scandals from few female’s testimonies, withdrawal from Trans-Pacific Partnership, reversion of Paris Climate Treaty and so forth, Dow Jones has continued to rise steadily with the backup force of increasing profits announced every quarterly by the large companies.

Last December, the longawaited US tax bill cut was finally signed into law by President Trump and implemented with backdated commencement as of beginning of the year.

No one would have a clue from 11 months ago that Dow Jones market would rise to new historical high above 25,500 level. In January, it has crossed the unbelievable 26,000 level and threw many short sellers off the seats.

Weakening Dollar is definitely a pros for lifting US stock market indexes. However, we reckon the huge cut of US corporate tax from previous 35 per cent to current 20 per cent is a big advantage for driving re-investment into the equity markets.

The sudden creation of massive cash liquidity is as good as an interest rate cut rather than focusing onto the rate tightening by Fed policymakers as an excuse of normalising borrowing cost.

In our opinion, the Dow Jones benchmark would have some more rooms to escalate till middle this year. This is a transitional period of digesting the tax cut reform and neutralising the dollar’s strength in global markets. However, there would be a risk in stock market in the second semester in the event of another two rate hikes.

Next month, the new chief of US Federal Reserve Jerome Powell will replace Janet Yellen and advance into his plan of rate hike that most probably will occur after six months later.

Technically speaking, Dow Jones market has advanced into an uncharted territory and unable to gauge the next resistance. Retail investors are beginning to turn crazy and start throwing their hard earned monies into the stock market and betting for a brighter sunshine on following day.

According to our forecast, the Dow Jones might scale up to 27,800 around mid-year and this might stop short of many wide expectation of hitting 30,000 major benchmark.

In fact, when all investors turn fearless in the stock market, that will be the time for you to halt and plan for retraction.

Trade well and watch the timeline till our predicted price target. Do not forget to manage your risk when your entry price turns 10 per cent adversely against you.

Dar Wong is a registered fund manager in Singapore. The opinions are solely at his own. He can be reached at dar@pwforex.com.