Breakout

Here’s how the Dow gets to 20,000 in 12 months

Breakout

If you really stop and think about, Dow 20,000 (^DJI) isn’t as crazy as it sounds. Sure, the market loves big round numbers and all, but if you look back in history you’ll discover that it’s been 14 long years already since the original “Dow 10,000 hats” were unveiled in March of ‘99. 

If that seems like ages ago, you’re right. That’s because the 30-stock blue chip benchmark took just over eight years to double from 2,500 in July of ‘87 to 5,000 in November of ‘95, and then only 40 months to double again.

That’s just part of the reason why Joe Fahmy, the managing director at Zor Capital, thinks the Dow could notch the next 25% in the next twelve months, and finally take out the big two-zero.

“What’s lead us here is the Fed’s accommodation, and a coordinated global effort of easing,” Fahmy says in the attached video. “As long as that continues then I don't see a reason for a break.”

Certainly a bold statement, but also one that needs to be clarified: no break in the up-cycle does not mean straight shot to the moon.

“Of course we will have corrections along the way,” he says, “however over the next year or two, I think the Dow can get to 20,000.”

As long as the 10-year Treasury yield (^TNX) stays below 4%, Fahmy says the bull run - and the economic recovery - should stay intact.   

In the meantime, he says the chance of succeeding in this type of market can be greatly improved if investors simply follow the patterns.

“In 2013 the pattern has been a 3-to-6 week rally, then when it gets a little frothy we correct down roughly to the 50-day or 10-week moving average,” he says.  Before long, investors start getting a little nervous and then “we tend to bounce“ off that trend line.

“So traders should play that pattern,” he recommends.  “Take a little profit on strength ... and look to buy on support.” Should that 10-week or 50-day average get broken, Fahmy says he’d use that as a signal to get defensive.

“The economy is improving,” he says. “A lot of people think this is only a Fed-driven rally, but as long as the earnings keep coming in, and unemployment improves, I think we’re on our way (to 20,000).”

More on Breakout:

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