Dow Reaches Milestone 20000

It was tantalizing moment when Dow Jones touched historic milestone of 20000 on Friday 06 Jan 2017. It was  a moment to celebrate, specially for me. Way back in Oct 2014 I had predicted this milestone in Dow while commenting  in a MarketWatch column. Dow was then at 16400 level.

My comment had elicited a response from a reader and I decided to start this blog to track Dow's journey to projected 20000. To get the drift, check out my first blog post Dance of Dow. 

You can also access the above referred MarketWatch column here. My comments can be viewed in the Comments section

Out of my four predictions on movement of Dow, three have so far come true. My fourth and last prediction is the most frightening. It is Dow's fall to 10000 from level of 20000.

What possibly can be reason for such a cataclysmic fall to 10000? You may find an answer to this in my earlier blog post

Bears Sharpening Daggers - US Markets in Danger of Bear Grip

Crude and  Brexit have already done their bit in shaking the markets. China still remains the elephant in the room.

Bored of Being Unemployed - For Traders Only, Investors Keep Out

As of this moment Dow is trading  at 17716, down114 points. Traders be ready to jump into trade as discussed below.

What we are going to discuss today is for traders' eyes only. Investors please do not try this risky strategy that I am going to discuss today. One has to be nimble footed and there is no room for fat fingers.

I will be giving Dow levels to trade. Scrips which are co-related with Dow movement can also be traded, keeping given Dow levels in view. I hope I am clear. If yes, let's trade ;-


Condition # 1

• If Dow falls down to 17400/17450, then buy.
• Sell your position when Dow bounces back to 17850/17900
• To square off this trade should not take more than a week.
• If this trade materializes then you stand to gain 400/500 Dow points in quick time.

Condition # 2

• If Dow does not breach today's low of 17700, then wait for right conditions for sell to develop.
• Dow is going to trade sideways, so sell will come if Dow takes bounce from 17700.
• I will let you know in advance when sell conditions develop.

By now you must be aware that I had predicted these volatile trade conditions on 15 Apr 2016, when I had recommended exiting long positions in Dow. For those who are visiting this page for the first time, you may like to read that post titled Bears Sharpening Daggers -US Markets in Danger of Bear Grip

Further I had mentioned in this post that 18000/18200 is selling zone in Dow and bears would like to ferociously defend this last known territory. In that post, I have also discussed about my apprehension of "Bull Trap", which seems to be turning out correct.

Today I am giving out this trade, mentioned in Condition # 1 above, only for traders. From 15 April 2016 onward we have been unemployed as mentioned in my earlier post Out of Work But Thankfully Out of Danger - US Markets Dive. 

I am reminded of the cliche "Better safe than sorry". 

Japan Unsettles Global Markets - Havoc Spreads

Bank of Japan announced it's monetary policy today -  that announcement brought tsunami in local and global markets. What did Bank of Japan(BoJ) do to unsettle global markets so much that bulls had no place to hide? Long trades were decimated in all markets from Asia to Europe to America.

In Japanese markets there was bloodbath with Nikkie225  losing 624 points, down 3.6%. So what did Bank of Japan do in it's policy announcement that horrified the investor community and made them dump everything in sight? Bank of Japan took following monetary policy decisions:-

1. BoJ kept its Deposit Rate unchanged at -0.1%.
2. BoJ maintained it's Asset Purchase target at 80 trillion Yen (USD 738 billion as of current conversion rate). 
3. It gave some relief to quake hit areas by offering zero interest rate loans to those areas.

Result of BoJ Inaction: 

After the announcement by BoJ, Yen roared into super-drive and strengthened from 111.88 to 108 against US Dollar. Presently it is trading at 108.5 as of going to press. 

Japanese economy is export oriented and hence Yen gaining so much strength against US dollar means that export of  Japanese companies will no longer be competitive. That will directly hit the top line of companies, finally effecting their bottom line.

What was wrong with BoJ decision?

Will someone please tell me what was so terribly wrong with BoJ decision. It basically did not alter anything from what existed since February 2016. Maybe it was scared to shake the equilibrium in the market as it existed. And look what it achieved - just the opposite!.

Why did BoJ keep rates unaltered?

BoJ thought not to change anything because it got scared of consequences. When it decreased Deposit Rate from +1% to - 1% last February, a sharp drop occurred in stock prices. This time around it did not want to take the blame of upsetting the market. And yet it did!

What did market want from BoJ?

We live in bizarre times. Negative deposit rates mean that if you deposit money with Central Bank, you will have to pay for it and not get paid.. 

Did market participants want further cut in deposit rates? I don't think so. That would have been disastrous for Yen- Dollar trade. Japanese exports would have got further hit.

Did market participants want BoJ to increase deposit rate to pre-February rate of +1% ? That would have effected liquidity. Entire exercise of negative rates was meant to spur growth for Japanese economy so that it can come out of decade long stagnation.

Maybe market participants wanted BoJ to decrease the borrowing rates to negative territory. That would mean that you get paid for taking loan from Central bank. Point to ponder!

Illogical Market Reaction

Japanese companies are effected and so is Japanese economy. Economy will shrink and deflation will take roots. But that has been the state of this third largest economy of the world for nearly two decades. How does that effect global economy?

Global economy has been chugging along despite Japanese stagflation for years. What has materially changed in global economy with today's inaction of BoJ ? Then why such a violent reaction in global markets to BoJ decision? I have no answer. If anyone reading this can provide an answer, we all will get educated. Hit the comment button at the bottom of this post freely.

As of now Dow is trading 58 points down. US market participants have reacted more maturely to news from Japan. May be it will make rest of the world think and act logically tomorrow.

Sun is finally setting in the land of rising sun. That is a reality and we have to come to terms with it - earlier the better.

Beginning of End of Oil Age - Saudi Vision 2030

Saudi Arabia got its importance and wealth from US oil crisis in 1970s.

U.S. response to the energy crisis was to establish deeper relations with Saudi Arabia. Deeper relations boiled down to two main points of agreement:-

• Saudi Arabia will have to sell its oil in US dollars only. It's implication is that any country wanting to buy Saudi oil will first have to buy US dollars to pay for oil purchased from Saudi Arabia. Thus began dominance of Petro-Dollars in world economy.
• In return Saudi Arabia got military protection from US.

Importance of Saudi oil started to change from 2009, when US oil production increased year on year. Increase in US oil production carried on unabated and Saudi influence declined proportionately.

To add insult to injury, more factors surfaced on the horizon for Saudis' discomfort :-

• New technology  allowed further increase in US oil production through fracking (Shale gas).
• US no longer is energy dependent on Saudi Arabia.
• Saudi Arabia allowed oil price to plunge, hoping to make offshore drilling and Shale Gas production economically not viable. By doing so, Saudi's calculated that they will decimate competition and again rule the oil market.
• Instead something very strange happened. Unimaginably low oil price did not increase demand in oil. 
• Demand destruction in oil was due to global financial crisis in initial stage. Then governments across the world started to curb use of oil and started investing in cleaner and greener alternative energy sources
• G-7 countries have agreed to cut carbon emissions and totally end fossil fuel use by end of this century.
• Paris Agreement on Climate Change last December commits all countries to holding global temperature rise to "well below 2 degrees Celsius". This can be achieved by sincerely shunning fossil fuel in an accelerated manner world over.Some more thoughts on fossil fuel in this post:

                          Break Free from Fossil Fuel - Resolve on Earth Day

Saudi Arabia has now realized that it has lost control over oil price. Iran's entry into the fray as another major oil producer has not helped the Saudi cause. As last ditch effort Saudis played Doha Summit card for production freeze so as to contain Iran. But Saudi bluff was exposed by Iran and rest is history. Read more :

                      World Waits with bated Breath - Doha Summit Outcome
                              How Will This Sunday Be - Black or Grey?

Last Monday Saudi Crown Prince announced pompously that Saudi Arabia will become oil-independent for its survival in next four years. He unveiled "Saudi Vision 2030" - an ambitious plan to diversify into income streams not dependent on oil.

This is admission by Saudi Arabia that it has finally given up hope of controlling oil price. We can now expect to be freed from the vice like grip of oil cartel headed by Saudi Arabia.

Before Doha Summit, Saudi Prince had threatened to increase oil production in case Iran did not sign Production Freeze agreement. I had commented that it is empty threat to scare US, so that Iran can be pressured. You may again like to read my argument in: Dare Saudis to Execte Threat to Ramp Up Oil Production.

"Saudi Vision 2030" has finally brought curtains down on fight to control market share. This will help oil price to stabilize and get dictated by market forces of genuine demand and supply.

However we wish Saudis success in their new venture.

As for us, we are presently unemployed. We are sitting on the sidelines, watching fight between bulls and bears in US markets. For insight into our present idleness read " Out of Work But Thankfully Out of Danger - US Markets Dive "

Dow In Negative Territory - Are You Scared US Markets Will Crash?

US markets have risen too much too fast. From mid Feb 2016 to date (in about two and half months) Dow has gained 2700 points (approx).This was achieved without any significant correction.

That has given credence to market speculation that US markets may collapse any time. Are you stressed by such announcements?

Let me categorically state that US markets are not going to collapse any time soon. Dow may drop down to 17200 in a worst case scenario. In such market condition, Dow will find support at 17200 and rise.

Reason why I am saying so is simple. There is long term support at 17200 level in Dow. However, Bank of Japan and US Fed will have to spring some nasty surprises this week for Dow to touch 17200.

In the absence of any shock from Fed/BoJ, Dow will go into sideways movement in coming days. 

Is this a Bull-Trap?

Let me draw your attention to the fact that I had forewarned you about a Bull-Trap  when Dow was near 18000. It was mentioned last week in this post . Relevant excerpts are again reproduced here for your eyes only.

"The best case scenario is that the sell off in equity markets takes place in slow motion. Big players may choose to exit their positions in a classical "Distribution Process" so that they can obtain reasonable price for their huge long positions.

So you may witness very high volatility with spurts of buying interest emerging and trying to draw eternal bulls into a bull trap. That is the shade of grey for you!. Keep out of markets and watch it from sidelines till dust settles down. I will keep you posted and immediately inform you as and when that happens. Be safe, be happy - adopt a no-trade strategy for the moment!!!"

Buying interest was generated when after Doha Summit debacle, Dow jumped from 17900 to 18150. From then onward there has been a steady slide. Are we witnessing the "Bull Trap" theory being unfolded?

Now the question is: How sapping will the Bear Hug be? I think not very sapping. If this is a Bull -Trap then bears will ensure that markets rise from their lows.  This will be done to entrap more bulls, before settling down into a bear phase. In short, be ready to witness sideways movement in US markets as I had mentioned at the beginning of the post.


As of going to press, Dow was down more than 100 points at 17890. Are you not happy that you are away from this volatility? Stranded with long positions, spoiling your mood and mental make-up, is quite disturbing!
So enjoy money saved by employing "No-Trade Strategy" as recommended by me in my earlier post. Check it here. Snippets from that post is shared again.

"But right now we should have market strategy to sit on the sidelines. Let various forces of pull and push play out. Let clear trend emerge and then I'll tell you confidently to enter trade for definite gains, like I always been doing"