As of yesterday, the Dow has set record close for 10 straight days in a row, which represents the longest winning streak in the index since Ronald Reagan occupied the White House. If that trend extends three more days, it will be the longest ever.
Since the day after the presidential election in which iT was clear that Donald Trump’s aggressive protectionist agenda would rule the White House, Dow futures have catapulted 20%.
But amid all the good news in the markets there are some telltale signs that portend some short-term threats, signs that are obscured by all the hubbub in the headlines.
First, as I’ve pointed out before, what goes up must come down. While I’m sticking with my prediction that the Dow will smash through 30,000 around or before the mid-term elections, the road to that record will be a bumpy one. And the seeds being sewn for those bumps are increasingly become clear.
Despite the 10-day record in the Dow, the fact that most of the gains have been seen in ETFs and mutual funds has come at the expense of other sectors like energy and small-cap stocks. So gains in the market have been largely concentrated in the industrial and large-cap stocks.
Historically when we see major movement in prices, whether up or down, that are locally concentrated in a few indices or sectors, what we nearly always see eventually is a correction.
On the one hand, if prices become too low then investors see stocks as undervalued which sets off a buying rush. On the other hand, if prices become too high too quickly, investors recognize at some point that stocks are overvalued and begin selling.
With the Dow hitting multiple records in a short amount of time — based almost entirely on the news cycle and on President Trump’s pledges for protectionism — we’re almost certainly setting up a massive sell-off within the next few weeks (if not days) in which investors will seek to capture profits.
This presents a perfect opportunity by either shorting select stocks or buying certain put options and profiting on the correction. The only question is by what and when the sell-off will be triggered.
I’ve been getting email from many readers showing interest in that and other topics and welcome all such comments, questions & requests. As I get a sense of what you would like to see, I can work it into future columns. So what would YOU like to see… or learn… or ask? Email me at: [email protected]