As Vicent Cignarella, FX strategist who writes for Bloomberg, writes overnight, the "Dollar Rally May End If Dow Fails to Pass 20,000" and the one variable that might determine if it does, is Donald Trump. Here's why:
President-elect Donald Trump’s first press conference in six months will need to include some policy specifics if U.S. stocks and the dollar are to continue their post-election rallies. The Dow Jones Industrial Average has led the dollar higher since the November election with a correlation above 0.85, but a potential problem for dollar bulls has emerged as two technical indicators show the blue-chip index’s recent surge will leave it short of the 20,000 milestone.
Tom DeMark’s TD Sequential is signaling a pullback in the Dow at the same time mean reversion technicals are flashing caution. The indicator is a trend-reversal technique designed to predict a turn in a market using exhaustion points to determine peaks and troughs. “If everyone anticipates 20,000 will be broken they are already in the market awaiting that breakout, so what impetus is left to move the market above that level,” DeMark said in a Jan. 6 Bloomberg TV interview.
The equity index has failed to stay above the second standard deviation from its annual mean a handful of times in the past month, suggesting its next breakout will be to the downside. The Dow gained as much as 9% after the election and on Friday climbed within 0.37 point of the round-number milestone. The dollar hit a 14-year high on Jan. 3. A retreat in the Dow accompanied by a dollar slide would only worsen if the President-elect doesn’t deliver policy substance as markets are looking for clarity on everything from infrastructure spending to trade agreements that will impact the economy.
And here are some further details from Bloomberg, why traders can count Tom DeMark among the growing group of skeptics that the Dow - which hit 19,999.63 last Friday and faded - will rise above 20,000 anytime soon.
The chart analyst said investor psychology is acting as a ceiling on the gauge - everyone who expects the level to be surpassed has already purchased stocks, leaving an absence of buyers whenever it gets close.
“We’ve been confident the last three weeks we would not break 20,000,” DeMark said in an interview on Bloomberg Television. “I assume there’s a possibility intraday we could, but it’s so unanimous, it’s almost as if the election were being replayed within the market. Everyone’s confident the market’s going to break 20,000. If it does break, it may go quite a bit higher. But I don’t think it’s going to happen.”
The stock market appears to be in a topping process that traces back to its November low, DeMark said, citing a technical indicator known as an offset 13 in the Dow average that was hit in the last two days and flashes sell.
"It’s unanimous, every market, even the derivatives, they’re all identifying tops at this time, all upside projections,” he said. “The Asian markets fulfilled their highs three weeks ago, a month ago, two months ago. The European markets, some have already fulfilled their tops, one or two may have one additional day."