By Nigam Arora
First and foremost, I am politically agnostic. My sole job is to help investors. This column is neither for nor against President Trump.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.92% would have been 10,000 points higher if President Trump had not done the “right” thing. Obama, Bush and Clinton should have done it, but they did not do it. What’s the right thing? To stand up to China. Before you send me hate mail, please understand that those are not my words. I am paraphrasing what Trump said .
Is Trump right? The answer to this question helps investors understand what may happen to the stock market if the trade war with China is resolved. Let’s examine with the help of a chart.
Please click here for an annotated chart of Dow Jones Industrial Average ETF /zigman2/quotes/208954582/composite DIA -0.88% . Investors should use charts of S&P 500 ETF /zigman2/quotes/209901640/composite SPY -0.49% and Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +0.14% instead of the Dow ETF. The reason the chart of Dow Jones Industrial Average is being used is because that is what Trump referred to.
Note the following:
• The chart shows a trendline starting from the Arora buy signal. As Trump won the election, most sources were predicting a big stock market drop; at that time, The Arora Report gave a buy signal. The signal was not an endorsement of Trump but simply based on our proven algorithms.
• Take a look on the right side of the chart as to where the trendline is now. The trendline shows that if the trend would have continued, the Dow Jones Industrial Average would have been at 31,000 points right now. This would have made Trump half-right.
• The chart shows the start of a parabolic phase in the stock market.
• The parabolic phase would have likely continued if it were not for certain policies adopted by Trump.
• The chart shows failure of the parabolic phase.
• Based on my 30-plus years in the markets, I can confidently say that more likely than not, another parabolic phase may have started in the stock market if it was not for the trade war with China. After all, this market is controlled by the momo (momentum) crowd.
• A successful parabolic phase would have carried the market higher by 7,000 to 10,000 Dow points. This would have made Trump 100% right.
• Without a trade war, it is highly likely that at this time Apple /zigman2/quotes/202934861/composite AAPL -0.28% stock would have been at $260, Facebook /zigman2/quotes/205064656/composite FB +2.19% at $250 and Amazon /zigman2/quotes/210331248/composite AMZN -0.34% at $2,500. Among semiconductor stocks, Intel /zigman2/quotes/203649727/composite INTC -0.30% would have been at $60, AMD /zigman2/quotes/208144392/composite AMD +5.52% at $40 and Micron Technology /zigman2/quotes/205710729/composite MU +1.39% at $65.
• The biggest Chinese ecommerce stock, Alibaba /zigman2/quotes/201948298/composite BABA +1.69% , would have likely been at $250 now if there was no trade war.