Dow 24,000 by Christmas if Trump pushes through tax cuts: trader

Alan Valdes
Alan Valdes

By Alan Valdes, Director of Floor Operations at Silverbear Capital

The start of Q3 earnings season has gone pretty much as expected. It’s been a little bumpy for the markets, but at the end of the day, it’s still bullish enough to hit Dow 23,000 (^DJI, DIA). At this rate, we may make Dow 1 million in only 75 years.

Thirty-three S&P 500 companies (^GSPC, SPY), accounting for 10.3% of the index’s total market capitalization, have reported so far in Q3. Total earnings for these 33 companies are up 12.8% versus the same period last year on 6.3% higher revenue; 81.3% have beaten EPS estimates; and 78.1% have beaten on the revenue line. It’s a tad early to extrapolate too much, but so far, very solid.

This could shape up to be one of the busiest next few weeks of the year. We’ll get 178 companies reporting over the next 5 days alone, including 53 S&P members. Notching another 1,000 points on the Dow is becoming almost common place — Dow 23,000 today, Dow 22,000 on August 2. Plus, there have been 65 new record highs since the presidential election. Herein lies the concern with the traders on the floor: too much complacency. For most of the last few weeks, the VIX “fear index” (^VIX, VXX) has been trading below or just above 10, a sign of too much complacency. Another troubling sign for traders is the bull/bear ratio. In the last few weeks of readings, there were four bulls for each bear. It’s a strong sign for markets, but a concerning sign for traders—as any little correction in the market could possibly turn these buyers into sellers. Then you will have four sellers for every one buyer.

Of course, there are a multitude of events that could put the breaks on this rally: North Korea, the Federal Reserve being too aggressive, Yellowstone, Trump’s tweets, etc. There is always a wall of worry out there. But, with the talk of tax cuts becoming more of a reality this year, you could see Dow 24,000 by December 25. Merry Christmas!