This is a good shorting spot.
27,000 is a good line on the Dow (/YM), which was around 18,000 from November 2014 through November 2016 so we can call that a good consolidation point. So we're 50% above 18,000 and that means, via our fabulous 5% Rule™, that we can expect a 20% (weak) retrace of that 9,000-point run, back to 25,200 or a 40% (strong) retrace back to 23,400 and, guess what? That happened already!
In fact, we fell yet another 1,800 point to 21,600 just recently but it was an overshoot and we quickly took back the strong retrace and the weak retrace and now we're back at 27,000 but the real question is – where should we be?
Let's consider that 18,000 was a realistic base. The economy was going well under Obama, America was at full employment and a respected World leader and the deficit was getting under control – all good things that help a market stay strong. The Dollar was strong too, it was at 102 in 2017 and Americans enjoyed great buying power and my kids loved going to the Dollar store to get knick knacks.
Trump took office in January of 2017 and he cut taxes drastically for Corporations and people in the Top 1% and the Dollar dove all the way to 0.88 a year later, a 14% collapse that we've only recovered half of 2.5 years later. Losing 7% of the buying power on every penny you've saved your entire life is a devastating shock to the average American, who was not able to offset the loss of buying power through their stock market gains.
Still the weak Dollar is also good for our Corporate Citizens (thanks Citizens United!) as well as for the Top 1%, whose stock prices were jacked up by the weak dollar which, of course, makes our exports cheaper too. This is how we make America Great, by devaluing our currency, running up the deficit and putting profits over people time and time again. Surely that's worth a 20% boost in the Dow, isn't it?
But now we should consider that 50% is MORE than 20% (math done as a courtesy for Fox viewers) so how exactly are we getting that extra 30%. Let's say there's some inflation (10% in 3 years is generous) so we can give the Dow 30% (23,400) but, to REALLY get to 27,000, I think we have to see some REAL profits, right? Especially if we want to hold it. So who made what on the Dow in 2016 and I'm not even going to talk about this year but let's see if last year's numbers justify an increase.
- MRK: $3,941 – $9,777
- VZ: $13,608 – $19,778
- JNJ: $19,803 – $15,119
- AXP: $5,375 – $6,759
- WMT: $15,080 – $15,201
- CSCO: $10,739 – $11,621
- AAPL: $45,687 – $55,256
- DIS: $9,790 – $10,913
- CVX: -$431 – $2,845
- UNH: $7,073 – $14,239
- NKE: $3,760-$2,539
- INTC: $10,316 – $21,048
- MMM: $5,058 – $4,582
- BA: $5,034 – -$636
- WBA: $4,191 – $3,962
- JPM: $24,773 – $36,431
- CAT: -$59 – $6,066
- PG: $10,027 – $3,966
- RTX: $5,436 – $5,948
- HD: $7,957 – $11,242
- V: $5,991 – $12,080
- MSFT: $20,539 – $39,240!
- TRV: $3,014 – $2,622
- IBM: $11,881 – $9,435
- XOM: $8,375 – $14,774
- KO: $6,550 – $8,985
- GS: $7,398 – $8,466
- MCD: $4,686 – $6,025
- DOW: $4,318 – -$1,717
- PFE: $7,229 – $16,298
So the 30 Dow Industrial Components made an after-tax total of $372,864,000,000 last year and that was up $85,725,000,000 (30%) from $287,139,000,000 in 2016. Isn't that funny, it's the same 30% we'd expect to get given the generous donations the American people have made via tax cuts, lowered labor and envrionmental standards and, oh, the complete destruction of our way of life in just 3.5 years. Worth it!
Speaking of funny…
- PFE paid $1.1Bn on $8.4Bn in earnings in 2016 and, last year, they paid $1.4Bn on $17.7Bn in earnings.
- MCD paid $2.2Bn on $6.9Bn in earings in 2016 and, last year, they paid $2Bn on $8Bn in earnings.
- GS paid $2.9Bn on $10.3Bn in earnings in 2016 and, last year, they paid $2.1Bn on $10.6Bn in earnings.
- MSFT paid $5.1Bn on $25.6Bn in earnings in 2016 and, last year, they paid $4.4Bn on $43.7Bn in earnings
- V paid $2Bn on $9Bn in earnings in 2016 and, last year, they paid $2.8Bn on $12.1Bn in earnings
- HD paid $4Bn on $11Bn in earnings in 2016 and, last year, they paid $3.5Bn on $14.7Bn in earnings
- JPM paid $9.8Bn on $34.5Bn in earnings in 2016 and, last year, they paid $8.1Bn on $44.5Bn in earnings
- INTC paid $2.6Bn on $12.9Bn in earnings in 2016 and, last year, they paid $3Bn on $24Bn in earnings
- UNH paid $4.8Bn on $11.8Bn in earnings in 2016 and, last year, they paid $3.7Bn on $18Bn in earnings
- DIS paid $5Bn on $13.9Bn in earnings in 2016 and, last year, they paid $3Bn on $14Bn in earnings
You get the idea, the vast majority of the earnings improvement in the Dow (and the S&P et al, of course) is not that they are making more money but that corporations pay far less taxes on the money they make. While our tax returns didn't shrink very much, theirs dropped more than the 30% increase in net earnings they are reporting. These are very much paper profits that can disappear with a stroke of Joe Biden's pen – which is why, no matter how awful he is or what he does or what he says – these Corporate Citizens will continue to back Donald Trump for the most part – look how good he is for them!
So, without the virus we can certainly justify a 30% bump in the Dow to 23,400 but 27,000 is a huge stretch and that's why we're shorting the Dow Futures (/YM) this morning at 27,000 – it's just not worth that much!
