Dow Jones broke a triangle as a continuation pattern and marches towards new all-time highs. The better than expected NFP number paved the road for the breakout, and now the index is on its way to complete the seventh consecutive bullish day.
Moreover, Dow Jones is not alone in this race to new highs. The S&P500 had its best July in a decade.
However, outflows from U.S. equity mutual funds and ETFs reached their highest level since 2008. Is this profit taking or just investors rotating to other asset classes like gold, for example?
Furthermore, the world stock market capitalization has surpassed 2019 world GDP levels. This is exactly what happened right ahead of the 2008-2009 Great Financial Crisis. Therefore, the outflow from U.S. equity mutual funds makes sense as investors fear a bubble.
What Propels the Stock Market Higher?
The stock market is viewed as an alternative to the fixed income market. Because central banks pushed the yields to historic lows, investors are left with few options – but riskier ones.
Yes, it is risky to invest in the stock market at current valuations. Yet, the money keeps pouring in. The Fed signaled it has no intention to raise the interest rates soon, so the flows in the stock market will likely continue. As such, new all-time highs for the Dow Jones seem just a matter of time.
Dow Jones Technical Analysis
After the June’s spike higher, the Dow Jones settled in a triangular consolidation. Such triangles are common at the end of running corrections, and a breakout is followed by more strength.
Moreover, the measured move of such a triangle is the length of its longest leg, projected from the breakout point. It easily points to a move above the magical $30,000.
To trade it, simply go long at the market and place a stop-loss at the last higher low in the triangular formation. As for the target, just use the $30,000 level.
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Dow Jones Daily Chart
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