Five or ten years ago, there were frequent commercials on business TV networks to use “trend-channel investing.” I always chuckled, as it was just a minor variation of traditional technical investing, which relies solely on chart patterns to determine a stock’s value. Nonetheless, while I think technical investing is more akin to voodoo investing, I still find it interesting.
From a technical standpoint, the Dow has plenty of upside. Take a look at this chart:
You can easily see the dramatic drop in October and sudden reversal to record-highs now. It bounced off the green support line but still has plenty of room to run before it hits the red line. If it does hit the red line, technicians will likely argue it is time to sell.
A similar chart for small-cap stocks would be more interesting. Historically, they out-perform large-cap stocks over the long-run but are more volatile. This year, small-caps are greatly under-performing large-cap stocks and are due for a reversal.
Yesterday, the National Federation of Independent Businesses (NFIB), which represents really small businesses, released their survey of small business optimism and it show improvement, especially in (1) higher expected rel sales, (2) current job openings, and in (3) the number of “hard-to-fill” jobs. What else really matters?
As long we remain in the upward-sloping channel between the green and red lines, the forecast looks good. So, enjoy the ride up . . . but remember to remain calm when the ride down begins!