At the end of last week, Chris Ciovacco recorded his weekly “Short-Takes” market analysis, and overall, things looked quite bullish. Most markets were above their moving averages, trends were turning up, and things were looking good. And then this week, markets turned down, and things got gloomier. But as we’ve said before, Stocks Don’t Go Straight Up (or Straight Down), and Chris said last week that he wouldn’t be surprised to see the markets like the S&P 500 retest the 3900-3950 levels. This is all part of a healthy consolidation. Of course, if markets fall below certain levels, we must reevaluate our position and see if the 2023 rally was just a “Bull Trap” after all. We should remember that the FED is still tightening, and we know “fighting the FED” is generally a bad idea.
New Long-Term Equity Breakout
On Tuesday, CME and CBOE TV financial commentator Alan Knuckman said on Fox Business, “Trump’s historic tax cuts will boost most American corporate earnings lines by at least 20% in 2018 — sending stocks soaring still from their current levels.” He is predicting that the Dow will reach 30,000. He said, “The Dow Jones Industrial Index is now within 21% of the 30,000 milestone which is very achievable after returning 25% in 2017.”
But after being up so much in 2017 isn’t it “overvalued”? You might ask. One reason for optimism is that even after being up so much earnings are up about the same amount. So the P/E ratio is roughly where it was a year ago, i.e. slightly above 21%. That is just slightly above the average level and well below peak levels. With corporate earnings up another 20% due to tax reform this year, prices could go up that much as well and the market still wouldn’t be overvalued.
