The Trump Index

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Includes: CAT, CXW, GD, JPM, SPY, UNP, URI, X
by: ChartMasterPro

Summary

The Trump Era is the new reality for the US stock markets.

There are certain business sectors that stand to profit from proposed Trump economic policies.

Going forward, these sectors will act as a leading indicator for broader US equity markets.

We created The Trump Index as a new trading tool to guide us on bullish and bearish trades.

Just before midnight on November 8, 2016, the S&P 500 futures were down a whopping 5% after Donald Trump was declared the winner of the White House.

But by the end of trading on November 9, 2016, the S&P 500 Index (NYSEARCA:SPY) managed to close UP 8 points or 0.38% in what was a remarkable reversal of sentiment: in a just one day, we witnessed the equity markets move from sheer panic to unbridled enthusiasm. And the S&P 500 has not looked back, rising 6.71% since the election.

The 'animal spirits' were unleashed - Trump's promise to 'make America great again' suddenly became something with real-world consequences and no longer just a cheesy campaign slogan. It really has been a stunning eight weeks on the US equity markets - especially when you consider the remarkable ride that the S&P 500 has been on since 2009.

From the day of President Obama's first inauguration (January 20, 2009), the S&P 500 has risen 182.49% - not bad, and yet, like Rodney Dangerfield, Obama gets no respect and has been blamed for the worst economic recovery since the Great Depression.

And for a president who has been painted by neoconservatives as the enemy of the American Dream, President Obama may have made one of the greatest stock market calls in history when on March 3, 2009, he stated that "Buying stocks is potentially a good idea."

But that was the past; we must trade with the future in mind.

Enter Stage Right: The Donald. The personification of the American Dream wins the Oval Office. Investors and traders go absolutely nuts, tripping over each other to get into the profit party before the doors to the golden penthouse are closed.

As traders, we must learn to see what is in front of our eyes, and not wish for something that is not on the screen. The Trump Era is now the new reality for the US equity markets, and we must learn to allocate our capital accordingly.

The Trump Index

It is with this new reality in mind that we have created The Trump Index.

The purpose of The Trump Index will be to track to the strength of the Trump Rally and act as a trading tool to guide us in the allocation of our capital to bullish or bearish trades.

The Index will comprise seven stocks which have popped significantly since the Trump win, on the assumption that their respective businesses will benefit greatly from proposed Trump economic policies. We will call these stocks the Trump Seven - they represent the following sectors: banking and finance (NYSE:JPM), steel production (NYSE:X), heavy equipment machinery (NYSE:CAT), rail transportation (NYSE:UNP), private prisons (NYSE:CXW), infrastructure maintenance (NYSE:URI), and defense (NYSE:GD).

How The Trump Index Will Work

We will use The Trump Index as a leading indicator for trades on the Trump Seven stocks (and also as a leading indicator for the broader US equity markets).

There are two technical indicators that will measure the strength of this index:

  1. The 28-day MA - this will be our early-warning indicator. Whenever the index drops below its 28-day moving average, it is a warning that the trend is starting to weaken. This will be a signal to lock in any profits we may have on any bullish trades in the Trump Seven.
  2. The RSI14 - this will be our trend indicator. When the RSI14 is above 50, it tells us that the trend is firmly bullish and that we should look for bullish trades in the Trump Seven. When the RSI14 is below 50, the trend has turned bearish, and we should look for bearish trades in the Trump Seven.

The Trump Index Remains Bullish

As of January 13, 2017, The Trump Index remained Bullish with a close of 90.18. The Index remained above its 28-day MA and the RSI14 was at 58.78. Since the trend is bullish, we will look for bullish trades on the Trump Seven.

Note: we will be providing occasional updates to The Trump Index when we can. Daily updates to the index will be provided on our soon to be available new service ChartMasterPro. Stay tuned!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.