Although one should pay attention to the divergence between HYG and the DOW (see my earlier published idea), a look at the weekly chart of the DOW suggests that if the present strength persists, we are likely to see much higher prices before any meaningful correction or change in trend sets in.
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And here we are, Dow at the top of the channel trendlines and the Fed announcing their decision for a rate hike (or no) later today. Must say that I am completely dumb founded by the strength of this rally. Oh well, let's wait to see what Yellen and Co. will say later.
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Is the DOW sputtering at the trendline resistance drawn or just consolidating before pushing higher? The uppermost channel trendline has the DOW at 21400 - 21600 in January. I'm not for such a view because i) PE ratios for stocks are at nosebleed levels and ii) earnings of corporate America should take a hit from the strong USD.
Markets are not always rational. Bubbles occur. They can last for a few years. Not suggesting we are in a bubble, just answering your question. Also, prices usually begin to correct when prices are about 100% over-valued. Markets tend to correct on fib numbers (.5, .6, 1.0 and 2.0 are common). Corrections are rare. Usually one correction every 2 years.
The current situation is bets on the future being made by hedge funds. The funds are selling bonds, and buying stocks, especially financial stocks and health-care stocks. Why? because Trump is anti-regulatory. It's just a minor rotation. The market always eventually returns to reality. I would expect some reality to set-in in January, as we get to know more about Mr. Trump and his policies and cabinet.
Regnevathe2nd
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@tradeBob1, "The market always eventually returns to reality" I'm in total agreement on this. If the FED does indeed raise the Fed Funds Rate in Dec, it's Jan 2016 all over again.
The current situation is bets on the future being made by hedge funds. The funds are selling bonds, and buying stocks, especially financial stocks and health-care stocks. Why? because Trump is anti-regulatory. It's just a minor rotation. The market always eventually returns to reality. I would expect some reality to set-in in January, as we get to know more about Mr. Trump and his policies and cabinet.