DOW 20,000 – Really?

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October 31, 2014
Market Analysis: Two Steps Forward, and One Step Back. Dow SLOWLY Moving Toward Our Target of 20,000
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Over three years ago I started to tie my annual forecasts in the Dow Jones Industrial Average to the various easing policies that were occurring in the US and subsequently in the various international countries.  I would like to be able to use more of a fundamental approach to my targets, but I believe the main catalyst for the continuing rise in stocks is this continuous easing.  In the past five years when the bull market rallies have slowed or stopped, a new round of stimulus is announced, and higher prices in stocks are realized in the days and months following.   So based on current stimulus programs, 20,000 on the DOW in 2015, or by the time the bull market is over, can really happen.

If you stay on top of what I have written the past few years, you know that I believe we are experiencing the third stock market bubble in the past 30 years.  Bubbles can go on for a long time.  From my view of US stock market history, the longest bubble was nine years, which was experienced in 1990-1999. Nine years is not typical without a 30% correction.  From 2002-2008 we had what is known as the “housing/credit bubble”.  This bull market in stocks lasted a little over five years without any meaningful correction.  We all know the results when the bubble breaks.  We have two recent examples to review the past three years in Gold and Oil.  Gold had a long term bull market until 2012.   Many analysts called for Gold to get up to $5,000 an ounce.   However, in 2012 it stopped going up and had a drop of 40% in less than a year.  In 2014 we had a reaction very similar in the price of Oil.  Oil reached a top in the third quarter of 2014 and has dropped over 50% in less than 5 months.  At this point,  I don’t see this happening  in the US stock market with the current stimulus programs in place, but, if there is a disconnect this year, I will have to alter my forecast.

When we reach March 2015, the US stock market will have had six years without a pause.  As long as the stimulus continues to affect stock prices, my forecast is that the market can continue to move higher in 2015, and 20,000 on the DOW is possible.  The stock market did reach our goal of 18,000 in December of 2014, but it has been very volatile this month.  January is typically seen as an important month on Wall Street.   Many believe “as goes January, so goes the year”.  Meaning, if January is positive, so will the year.  I do not find much merit in that belief, but it appears January is not going to finish well.  On January 22nd, the ECB announced a stimulus of $60billion EUROS a month through September of 2016.  On this announcement, the stock market rallied over 250 points on the DOW, but has recently given back all of that gain.  The ECB’s stimulus does not take effect until March.  In order for 20,000 on the DOW to be reached, the market needs to start moving higher soon.  The sideways action of the DOW bouncing back and forth in the 17,000-18,000 range needs to be cleared to the upside by the end of the first quarter, or I would have to conclude that the stock market is not showing continued connection to the various stimulus programs.

In conclusion, my 2015 forecast is for the DOW to reach 20,000 by the end of the year, although I am monitoring a few potential pitfalls which may arise a few months from now.  I will discuss these in future communications.