The Y20K Stock Market Glitch

The Millennium Bug was supposed to unleash chaos across the globe.

As the last few seconds of 1999 ticked away, many people were expecting the worst. A Y2K computer glitch had the potential paralyze the banking industry, cause massive power outages and even launch rogue missile strikes.

“Through the last wintry months of 1999, people didn’t really know what to expect,” The New York Times mused a decade later. “Would missiles begin a ‘War Games’ chain of events between Russia and the United States? Would planes fall from the sky? Would everything on my computer be erased, gone forever?

“Speculation said yes. Luckily, reality said no.”

But in the end, all the Y2K bug really accomplished was a small bump in canned food sales thanks to those who were prepping for the potential turmoil.

Nearly 17 years later, we’re faced with another overhyped “glitch” that’s already sending the investing population into a frenzy…

I’m talking about Dow 20,000 – Y20K.

With the Big Board up more than 13% on the year and sitting tight at 19,756, the financial media is losing its collective mind over the impending push to 20K. As of this morning, the Dow is a measly 250 points away from the round number.

If last week’s momentum surge trickles over, we could see Dow 20,000 as soon as this afternoon. And the insanity over the numerical milestone is already driving me nuts.

Let’s put aside the hype for just a second and dig into what’s driving the Dow higher…

The Dow Jones Industrial Average chugged to another new all-time high Friday. Half of the Dow’s 30 components are up double-digits this year. Caterpillar is leading the charge with a 40% gain. The Vampire Squids at Goldman Sachs aren’t far behind. The megabank has posted year-to-date gains of more than 34% as we enter the final trading weeks of 2016.

Just one Dow stock—Nike—is down double-digits this year.

dowjones12-12-dr

These numbers would please any investor who had just snapped out of a yearlong coma. But since we have the benefit of hindsight, we know just how far the Dow has come since the major averages bottomed out back in February.

Remove our calendar bias and it’s clear that the Dow’s 2016 comeback is not your average market move. The Dow is actually up more than 24% since its February bottom. That’s one hell of a run.

Is the stock market overbought right now? Of course. Does that mean the market has to post a sharp pullback this week? Absolutely not.

Don’t forget that there is a very strong bid underneath this market. My friend and fellow market technician Jonathan Krinsky notes that we saw 484 new 52-week highs on the New York Stock Exchange last week, the most since May 2013.

“This suggests there is support for the ongoing uptrend,” he explains.

Meanwhile, the financial media is conjuring up scary images of past round-number encounters.

“The Dow first hit 100 in 1906 but it wasn’t until the mid-1920s before it convincingly traded higher than that level. And it permanently broke above it in 1942,” The Wall Street Journal warns. “The same held true for Dow 1000. The blue-chip average first reached that mark intraday in 1966, but didn’t close above it until November 1972. And it wasn’t until 1982 that the Dow finally traded above 1000 for good, 16 years after initially breaching that mark.”

Spooky stuff.

But is it enough to send the market down the tubes? Will a Y20K market glitch kill any shot the we have at a prolonged, sustained rally heading into 2017?

It doesn’t look like it…

Remember, this rally has been coiling like a spring for months. We’ve been chronicling the telltale signs of a fourth-quarter melt up in these pages since the summer—well before the surprise election results and all of this talk of a Trump bubble.

Yes, the market will eventually need to blow off some steam as it always does. But this won’t be the first shoe to drop. You can put your canned goods and bottled water back in the bunker for now.

Enjoy the ride…

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning