Editor's Note: Shah Gilani, our Capital Wave Strategist, is in pretty high demand these days as the keys to D.C. change hands and the Dow rockets past the critical 19,000 mark. Not only is he fresh from making his readers some of the biggest, fastest gains in the history of his trading services - 717% on Sturm, Ruger & Co. puts in a week - he's been all over the news giving his take on where the markets are going next.
But Shah took a break from his busy television schedule to chat with me by phone about some things he just can't say on TV, including exactly how important this milestone is, what this unknown territory holds for investors, and how to position yourself for the maximum possible upside at a time like this.
This is big...
Greg Madison: Thanks for taking the time to talk with me, Shah.
Shah Gilani: Of course. Anytime!
GM: Let's get right to what's on everyone's mind: It's all about the "Dow 19K" phenomenon. What is the significance, psychologically and technically, of the Dow Jones Industrial Average topping 19,000 points?
SG: It is very significant. For three reasons.
For starters, it just wasn't expected in the wake of Donald Trump's election. We all know the markets had "priced in a Clinton victory" and were supposed to tank should Trump win. That was the conventional wisdom, anyway, but to be honest, my gut told me this would go Trump's way -
GM: Like you accurately called the Brexit vote back in June?
SG: Yeah, exactly. So my Capital Wave Forecast and Short-Side Fortunes readers were in position for a Trump win, too, and I was able to make those infrastructure recommendations in Money Morning pretty quickly on Nov. 9. By the way, none of that stopped us from booking a 717% gain from my "Clinton" trade.
GM: So let's get back to "Dow 19K."
SG: Right! It's easy to get sidetracked when you're talking gains that fat.
GM: (laughs) Tell me about it!
SG: Look, another important thing to consider is that, at 19,000, the Dow is just 5.25% - or a couple of trading days, max - away from 20,000. And that is the big psychological tipping point; it'll get a lot of attention and draw more people into the market.
Finally, "Dow 19K" is important now, but the index will be manifestly more important when - not if - we ride it up to 20,000. There, the psychology about growth prospects brightens considerably. It means we will not in fact go backwards to have to deal with deflation and failed central bank policies. We may actually internalize those demons, digest them, and spit them out on our way to fundamentally better expectations for recovery. Frankly, it's not fair to talk about it without acknowledging the break from the past and the election of Donald Trump.
GM: Well, from a psychological and technical standpoint, where and how do you see support and resistance shaping up now?
SG: That's the cool part - there's no real resistance to speak of. That's because of the extraordinary amount of money on the sidelines that's been sitting there on the sidelines, piling up to the tune of hundreds of billions of dollars, all in case markets swooned post-election. That's in psychological terms.
Now, on technical terms there's always some resistance at whole numbers, often at benchmarks like 19,000. But if we get above there, technically - and I am a technician from way back - there's not a thing but thin air overhead. On the downside, there's some support on the Dow at 18,500 and major support at 18,000. Those are the levels I'm watching if we falter anywhere on the road to somewhere up there.
GM: Do you see any threats on the horizon? Anything keeping you up nights? How do you play defense in a market like this?
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SG: The world's in love with the market right now, but all the usual threats and boogeymen are still out there.
Disintegration of the European Union is a big one now. Now, in the long run, this would likely be a good thing for some countries, and terrible for others. But the prospect of that breakup forces us to look at the European Central Bank backstopping of so many fundamentally flawed and undercapitalized financial institutions. Plus you'd have to contend with what would happen to the banking system across Europe, without the emperor of collateral coinage - even though we all know that particular emperor wears no clothes.
The prospect of currency wars and massive devaluations with their knock-on valuation adjustment paradigms is worrisome. The so-called "Trump tariffs" could usher in unwanted repercussions, too. If oil collapses back below $30 to maybe $20, there would be chaos in the Middle East - I'm talking revolutions. Wars. That's a problem, though fighting would lift the price of oil, whether there would be any benefits to regime change in those countries would be anybody's guess.
In my view, there's only one way to play the markets now: that's from the long side with lots of stops. The best long and short bets to make right now are on huge macro plays and firm-specific opportunities, like Ruger or Caterpillar.
GM: Aside from infrastructure, which, all things considered, might be a bit pricey if you're not in by now, do you see anything interesting out there?
SG: Well, I think there are some tech plays that have been pounded lately that are starting to look mighty appealing. Overall, though, if the market's a true discounting engine, then you still have to go after what's defied logic lately, but, and this is important, use stops - because profit-taking and retracement is very possible.
Bottom line: There's so much capital to be put to work, it would be the mistake of a lifetime to sit and wait for the correction that just isn't coming.
GM: Thanks a million, Shah. Always great to talk with you.
SG: My pleasure.
About Shah... Shah's decades of experience as a "trader's trader" mean he's got the markets dead to rights - nothing Wall Street can muster can fake him out. In the wake of the election, he and his Insights & Indictments readers are going up against some massive hedge fund positions... and winning. You can get this play, along with all of Shah's free profit recommendations and analysis, twice each week. Just click here. There's no charge, and you'll also get his Investor Briefing on how to profit from central banks' financial repression.