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November 16, 2016 | Can ‘Trump Rally’ Overcome Severe Headwinds?

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

There are good reasons for the stock market to have celebrated Trump’s victory with a strong rally. For one, a Republican Congress will be able cut taxes on small businesses, particularly the biggest, most job-asphyxiating tax of them all — Obamacare — when legislators convene in January. With respect to protectionism, only Trump’s detractors, including the Wall Street Journal op-ed page, seem scared. More likely, in my estimation, is that Trump will rewrite the book on trade deals so that there’s more in them for the U.S. Every country on earth would love to sell goods to America, and Trump is arguably the right guy to strike better deals than we’ve typically gotten in the past.

That said, there are equally good reasons for being cautious if stocks continue their ascent. Corporate profits have declined for S&P companies for the last six quarters, and the trend isn’t likely to reverse significantly any time soon. Moreover, with interest rates rising and corporate credit ratings in decline, publicly traded companies will have a tougher time borrowing to buy back their own shares. Such buying has been one of the mainstays of the bull market as it has forged steadily higher since since March 2009.

Three Charts to Watch

Although I’m optimistic that the rally will continue into 2017, I plan to keep a very close eye on three charts in particular: that of Amazon, a key bellwether for U.S. economy;  the Dow Industrial Average; and the E-Mini S&Ps.  We have targets outstanding for the latter two, respectively, at 19,489 (or alternatively at 19727) and 2240. These are high-confidence numbers that should be expected to work precisely. I also regard them as minimum upside objectives. However, a stall at the targets could mark the bull’s last gasp. No matter how bullish we might be at the time, Rick’s Picks will be recommending speculative, tightly stopped shorts from those levels.

T-Bonds are a concern as well, since they’ve suffered a bloodbath since July. I view the selloff as corrective, albeit severely so, and have not budged in my view that deflation, rather than inflation, will eventually overwhelm the global economy. Under the circumstances, the rise in interest rates that has corresponded to the selloff in bonds since July would appear to be discounting an upswing, or perhaps merely an uptick, in the U.S. economy. The trends seem heavily overdone by now, and that’s why Rick’s Picks continues to hold a long-term tracking position in TLT, an ETF for 30-Year Treasurys.

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November 16th, 2016

Posted In: Rick's Picks

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