The index resides a mere 38 points higher than at the time of posting that update. Nonetheless, it remains my view that this hesitation should be largely ignored, or indeed seen as a positive development, as the market cleanses itself of late-June and July's excesses. My target at 16,175 remains intact.
US equities have learned to live with the rise in 10-year Treasury yields to 2.6%. But as the Federal Reserve's tapering of quantitative easing (QE) draws slowly nearer, the question we must ask is whether they can learn to live comfortably with yields at 3.5%, this being level to which I have previously suggested the yield will eventually rise. A higher cost of debt (through higher coupon bond issuance) is plainly not good news for companies. However, the continuing rotation out of overpriced US government bonds has to find an alternative home somewhere, and US equities are likely to remain the short-term beneficiaries of this asset reallocation. Therefore, any calm but ongoing short-term rise in 10-year yields is not likely to impact until our upside target has been fulfilled.
There is little else to add to today's chart. I have drawn a line representing an 8.33% rise from last month's low, which appears the only resistance between the current level of the Dow and my target band of 16,023-16,186.
Recommendation: stay long. Target 16,175. Stop-losses can remain unchanged and activated only on momentum below 14,390.
1. This minor resistance is highlighted on my short-term profile of the Dow's chart, available on request.