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Today, I want to take a minute to update you on the tight sideways box the markets are trapped in as they decide if the Trump administration and Congress combination can make meaningful changes early in the term.
Then I'm going to treat you to a bold, profitable prediction.
So let's get right to it with the charts, and a quick look at our five-week trading box and price activity that just keeps getting more compressed…
Inside the box, we can see that that the Dow Jones Industrial Average has gone 27 straight days of trading within 20,000 – without going over.
And we can also see the Bollinger Bands contracting to give us a good old-fashioned band squeeze. (Bollinger Bands are designed to capture 95% of the price action of the past 20 trading days. If the price action is extensive, the bands are wide. When price volatility dries up, the bands narrow.)
In essence, the market has settled into a true "wait and see" attitude.
For more on my thoughts about market direction from here, I'll share a conversation I had with my good friend and master stock picker William Patalon, III, the Executive Editor of Money Morning.
Here's an edited transcript of our talk, which took place a few days before Inauguration Day…
William Patalon, III: So, D.R., last year (Sept. 12, in fact), you held a webinar for your Stealth Profits Trader folks and predicted a "market melt-up" – you know, an actual stock market rally, when most folks were talking about a full-blown "market meltdown." Turns out, the so-called "melt-up" rally you predicted is what we got – not the meltdown the masses were fearing.
Before we talk about your newest market prediction, because you're making a new prediction here – and I want to highlight to folks how substantive and well-thought-out your "market calls" are – let's take a couple of minutes to share the "thought process" that went into that prediction.
D.R. Barton, Jr.: The really interesting thing, Bill, is that I made that "market melt-up" call the day after the Dow Jones had its second-worst drop of 2016 – almost 400 points – and many people thought the summer doldrums were turning into a full-fledged fall walloping. On Thursday, Sept. 8, Mario Draghi, head of the European Central Bank (ECB), said there would be no significant new stimulus from that body. The U.S. stock market opened down a bit the next day – Friday, Sept. 9 – only to have Boston Fed President Eric Rosengren say in a speech that he thought interest rates should be moved up in the United States – a move that investors were dreading.
WPIII: And a move, incidentally, that Rosengren was publically opposed to before his change in stance.
DRB: That's right, Bill. Well, we saw the impact – fallout – from that: The market plummeted for the rest of the day, closing on its lows. The only thing that stopped the selling was the closing bell…
WPIII: Then came the weekend… and waiting.
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.