"Round numbers are always false."
--Samuel Johnson
After a very brief stumble on a slightly more hawkish Fed than anticipated, markets around the world are back on track and working higher. The very annoying focus on the 20,000 level of the Dow Jones Industrial Average is growing louder and it is hard to fight the sense that its inevitable. Market commentators just aren't going to stop talking about it until the deed is done (a point also made by my colleague Jim Cramer in his opening post this morning.)
20,000 is a meaningless technical level in a very misleading index, but round numbers like this have great psychological appeal. They are highly memorable and provide a sense of completeness, which is what drives the scrutiny. When the Dow finally does hit the 20,000 level, there will be a sense of "mission accomplished" and the psychological dynamic of the market is likely to change.
The DJIA is a price-weighted index, which means the higher the price of a stock the more impact it has on the calculation. Goldman Sachs (GS) is by far the highest-priced stock in the Dow. It has been outperforming due to the focus on financial stocks, and that is essentially why the Dow is at the juncture it is. If it wasn't for this one stock it is unlikely we'd even be talking about 20,000.
The more important issue for market players is how to navigate this action. Despite all the chatter about new highs and big round numbers, this market is extremely tough for traders. It is great if you buy and hold and have no intention of trying to call a top. However, if you are an active market participate trying to move in and out of positions, this is not an easy market.
One of the hardest things about the market lately has been the sudden shifts in rotation. One day it is oil and FANG names looking good; the next it's financials, airlines and biotechnology. There isn't much consistency, but there are new leaders each day and that is what is keeping the indices going.
Another challenge that market players face right now is that we have positive seasonality as well as year-end portfolio adjustments taking place. Tax considerations are impacting trading for the next couple weeks and that makes it tougher for those folks who focus on chart patterns. If someone is locking in capital gains or losses they don't much care about technical patterns.
I'm struggling with putting money to work in this market, but what I find most surprising is that traders I know who are very aggressive momentum players who are not shy about chasing extended charts are having a hard time as well. I'd normally expect them to be on margin and trying to make room for new buys, but instead they are sitting on higher levels of cash.
The takeaway is that this is not just another market that made a big V-shaped move. The underlying action is different. What is taking place is a major shift in character as the market tries to sort out the winners and losers in the Trump era, which is likely to have higher interest rates. The market has overshot and dragged many stocks along with it, and that is what is making it so hard for many traders.
It isn't as easy as it looks, and the focus on the Dow hitting 20,000 makes it even harder.
SPDR S&P 500 ETF (SPY) and some of the other index ETFs are ex-dividend today, so take that into account as you contemplate opening prices.
