Dow powers towards major target

Price at time of writing – 15,570.

A further 333-point surge in the two weeks since my last Dow update has taken the index to within 605 points, or just 3.9%, of my major target at 16,175. 

In current markets, advances of the magnitude can occur quite quickly, and preparations to take profits should be now be in the planning. In the meantime, my long recommendation remains completely intact.

The Dow and Germany's DAX have been the two outstanding major indices since global share markets offered investors the buying opportunity of a lifetime, as they collectively hit their major support levels in early 2009. The DAX has just pipped the Dow in their race to a 150% advance over the subsequent period. The DAX arrived at this milestone just last week, and you can see my profit-taking recommendations in today's German update. The Dow now looks poised to follow suit and reach this milestone imminently, taking an impressive second place.

The two indices advanced towards these aggressive targets with differing tailwinds, however. The US economy benefitted from very aggressive monetary stimulus, implemented much earlier, and now known to the world as quantitative easing (QE). I saw this as a tactic to financially punish those who hoarded cash and refused to engage in the investment process for the greater good of a US economic recovery. As such it worked perfectly. Meanwhile, Germany and its world-leading manufacturers discreetly enjoyed the opportunity to export best-of-breed products to a global market, but crucially with the advantage of a currency much weaker than its situation justified. For this, the nation has everything to thank for the problems experienced by its struggling eurozone nation peers.

My charts suggest some greater divergence now lies ahead for global share markets. Economically-stable eurozone markets like Germany, the Netherlands and Belgium have fulfilled their respective upside targets, and look set to underperform. However, Eurozone markets that have struggled, such as France, Spain, Ireland and Greece, are still in various stages of sharp upside breakouts. Mining- and resource-dependent nations such as Australia also look set to expand upon recent sharp gains. The US and UK markets have further modest upside, and are likely to be caught somewhere between these wider divergences that I expect will become clearer in coming weeks.

Recommendation: stay long. Target 16,175, where profit should be booked and short positions opened.

Dow Jones chart

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.