On Thursday, I posted, “If we start up at the Open trading to the upper level would be prudent, and then ready to sell on weakness or additional buying on a break of that level (24,200).” I wrote that because the Resistance Level was clear. The market was bullish Friday as evidenced in the Dow 15 Minute Chart – showing the index breaking resistance and then touching it before continuing back up. This is a classic case of Resistance turned to Support, and gives us a very solid level to work from.
The Daily Chart shows the same long consolidation we have seen forming for about a month, with upper boundary at about 25,000 and lower at 23,000. We still want to watch that lower boundary at 23,000 but the market is still acting as if it wants to rally. Today’s action gave us a good reason to continue in this thinking. The wide consolidation implies an ultimate continuation move to 29,000 – which seems improbable given the jobs situation and general state of affairs. But never underestimate the power of the Fed. (see Commentary below).
We’ve been talking about a Long posture in here. We want to watch for a strong push down through 23,150 over the next few days. If it holds above this level, we have to assume the market will continue rallying, and likely push back to highs at 29,000.
How can the market remain so bullish with the current economic situation? Whenever the Fed pumps trillions into the economy, things should look good for a while. It’s like writing a bankrupt consumer a million dollar check. To the world, they can look quite healthy as they spend it – until the credit card bills come due again. But how many more checks will the Fed write?
We know that in election years, the party in power (either one) will do what it can to shore up the economy. So it’s quite possible we will see continued stimulus all the way to November. The market seems to expect this to happen, while also expecting scientists to come up with solutions that help it recover when the checks run out.
Let’s say that’s right. The intersection of “end of stimulus” and “pandemic over” is critical to the market’s continued health. October 2020 could make 1987 look like a minor pull back. We believe the Chart Tells All, and can continue to use key Support and Resistance levels on the indexes to take the market’s pulse each day as it moves forward in this uncertain time.