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US30 - Meeting Resistance at 27000 as Veteran Believes US Stocks are Overvalued

   

 

US30 - Meeting Resistance at 27000 as Veteran Believes US Stocks are Overvalued
 
In the last week the US30 index has run into a wall of resistance at the key 27000 level which has applied significant selling pressure on the index. In the few days leading up to the resistance, the US30 index pushed higher through the 26000 level reaching its highest level in three weeks. In the last few weeks it has enjoyed solid support from another key level at 25000, while receiving some resistance from 26000 remaining in a range between these levels, up until the break last week. Several weeks ago, the index fell strongly after having moved strongly higher through the key resistance level at 25000 and 26000 on its way to a three month high above 27000.

In the last two months the 25000 level had turned away the index on several occasions, reinforcing how significant the 25000 level had become in this period, and it has been able to provide some strong support to the index in the last four weeks. Should the index decline further, the 25000 level will be expected to continue to offer support, while the 27000 level continues to loom above having placed downward pressure on the index recently and earlier in the year.

Throughout April, the US30 index rallied higher to a one month high near 25000, while the key level of 22500 supported the index. During this period, the US30 index settled right down content to trade right around the 24000 level, with the 25000 level looming above and continuing to offer resistance whenever the index rallied. The US30 index is also likely to receive some support from 22500 should it break back lower through 25000.

Since mid-March the US30 index has done very well to regain most of the lost ground, after the significant drop where it moved from all time highs above 29000 down to a three year low near 18000. During its rapid fall, the US30 index completely ignored any possible levels of support on the way lower indicating how strong the move was. Fortunately the index has been able to rally higher in the last two months, consolidate around 22000 before moving back above 25000 and remaining there for the last month or so.

Veteran U.S. market strategist Ed Yardeni has warned that US stocks are currently overvalued and could be adversely impacted if tensions with China increase and if coronavirus cases continue to surge higher.  Mr Yardeni is well known for his generally bullish market predictions, so it is potentially telling that he is singing a different tune right now.  Last week, Mr Yardeni said on CNBC, “We’ve had a melt-up and that’s very visible in valuation multiples. Stocks are not cheap.  Valuation is certainly a concern in the US. It’s got me thinking whether it’s time to go global during this bull market.”  Mr Yardeni believes those people who are invested in US stocks should prepare for a sharp correction as the number of COVID-19 cases show no signs of abating, and therefore investors should look globally for other buying opportunities.  He added, “On top of that, we don’t seem to be handling the opening up of our economy and social distancing to minimise the flare-ups of the virus as well as they’re doing in some parts of Asia and Europe.”  “We’re seeing major states reversing the reopenings of their economies. So, all this good news we’ve gotten in May and June on the economic front, including even the unemployment numbers, is vulnerable,” he said.

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