Never one to back down, President Trump has always cited the rising stock market as confirmation of his success. But with Wednesday’s huge market crash – something we haven’t seen since early February – how will the administration spin this one?
Make no mistake: if the Dow Jones continues to slip, the White House must make a statement. With midterm elections just a few weeks away, the President more than ever needs positive reinforcement. Sure, Fox News will go to bat for him, but the mainstream media corners American hearts and minds. Even conservatives now have some doubts.
One of the most worrying aspects of the market crash is the magnitude. In a fell swoop, the Dow Jones evaporated nearly 832 points. The investment sector certainly needed a correction, but this was a collapse that caught many professionals with their pants down.
Another disconcerting factor is the major indices’ technical posture. After the market crash, the Dow Jones sits sandwiched between the 50 day moving average above, and the 200 DMA. Without any real support at the current level, the Dow is likely to fall further.
What’s Next after the Market Crash?
In the immediate aftermath, I’m targeting the 25,000 point level. That’s roughly where the 200 DMA stands now. Recall that in the market crash that occurred earlier this year, the Dow Jones clipped its then 200 DMA several times (the last time in early July).
Of course, making that point is akin to preaching to the choir. The question is, what will happen over the intermediate term, and over the next several years?
If the five-year history of the Dow Jones is any indication, investors shouldn’t panic over this current market crash. Back in 2015 and 2016, the major indices suffered severe losses and technical damage. However, the markets bounced back resolutely, proving bears wrong.
Will this time prove to be another correction ahead of a thumping rally? You certainly don’t want to bet against “The Donald!” However, this market crash has proven different than others. A prime example is that investors did not seek shelter in the bond market, a highly unusual dynamic.
Moreover, both the gold and silver price have not experienced significant movements following the market crash. That could change: gold and silver prices have been stuck in relatively sideways consolidation since around mid-August.
Ultimately, I don’t want to hit the panic button yet. While speculators are looking to advantage the next “big short,” I worry that we’re being played by the markets. Instead, I’d look to go long major blue chips if they hit a significant discount.