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Martin Armstrong: Dow Outlook

* December 8, 2016

The Dow has made a thrust up to the mid 19000 level. We can see technically, the market has closing resistance at 19576 level with the next level up at the 19731 area. We have a Daily Bearish Reversal at 19135 temporarily from today's high.

We have some weekly closing resistance at the 19695 level followed by 19992 area. Support lies back down at the 18813 level technically. The next key Daily Bullish stands at 21301. That will change if we keep making new highs. It may even move lower.

Looks like volatility may rise next week. We could pause, retest support then turn back up into January. There is a risk that we then have a correction.

Note that we have three Directional Changes back to back from December into February, then another group of three during the summer. This pattern suggest that people will start to get bullish, and then get trapped. Nevertheless, you will still have the people preaching their own books like Bill Gross, who they call the Bond King, said Trump’s trade policies would damage the US economy, and his spending and tax plans will create more debt that will hurt long-term growth. Goldman Sachs' top strategist, Charles Himmelberg, predicted that the S&P 500 will end next year at 2,200 with yesterday's close at 2241. There are still plenty of people who continue to think inflation is bad and rising interest rates. Deflation has done nothing to help the European economy. All they keep doing is reading their text books from school.

This rally is not all about earnings. This rally is also being pushed by the burst in the bond bubble and the fact it is a lot worse everywhere else. The traditional earnings/interest rate analysis will just not cut it this time. Stocks are NOT based on the long-term value of a company’s earnings. There are times when you just want to park your money when banks and bonds are not a place to be. The highest PE Ratio took place in 2009 during the crash - not a bull market. Why? Smart money just wanted to park in blue chips.

Interest rates are likely to rise with inflation and that will attract more capital to the dollar. The 2007-2009 event still has many people on the sidelines fearing a Black Swan financial crisis. The BREXIT vote was supposed to usher in a wave of turmoil in stock markets following the same reasoning Gross is applying to Trump and trade. Stocks did drop for a day, before recovering fully by the end of the following week. A Trump victory was supposed to do the same, but stocks stocks have rallied.

The fundamentalists have continue to keep people confused and missing the trend overall. I suspect that the majority of the retail public will start to jump in after 23,000 is exceeded on the Dow. The will keep expecting this to end any day now, and we may yet get that Phase Transition after getting through the 23,000 level.

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