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Chart of the Day / Why the Dow Could Rally Big on Tuesday

Why the Dow Could Rally Big on Tuesday

May 27, 2018

The on-again, off-again meeting with North Korea is apparently on again.

Just last week, the Dow Jones Industrials fell nearly 300 points on news that President Trump canceled the summit with North Korea.

At the time, Trump wrote Kim Jong Un saying:

We greatly appreciate your time, patience, and effort with respect to our recent negotiations and discussions relative to a summit long sought by both parties, which was scheduled to take place on June 12 in Singapore. We were informed that the meeting was requested by North Korea, but that to us is totally irrelevant. I was very much looking forward to being there with you. Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting. Therefore, please let this letter serve to represent that the Singapore summit, for the good of both parties, but to the detriment of the world, will not take place. You talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used.

On fears of increased tension, gold prices inched up from $1,290 to $1,303.  Even defense stocks like Lockheed Martin (LMT) climbed from $315 to $325.

Raytheon (RTN) ran from $207 to $213.

But just a couple days later, it appears talks may be on-again with the North Koreans.

“We’ll see what happens,” said Trump.  “It could even be on the 12th.  We’re talking to them now.  They very much want to do it.  We’d like to do it.”

Even South Korea’s President announced that it held a secret meeting with Kim Kong Un in an effort to keep diplomacy between Washington and Pyongyang alive.  “The two leaders frankly exchanged their opinions on implementing the April 27 Panmunjom Declaration [which the two struck in April at their first historic summit] and for the successful staging of a U.S.-NK summit,” noted South Korea, as quoted by National Public Radio.

While market reaction to the news was muted by the Memorial Day weekend, we expect to see a quick recovery rally on the major indices on the open Tuesday morning.

We’re already seeing small rallies in Korean ETFs and indices, too.

  • The Korea Fund (KF) rallied from $40.60 to $41.50
  • The iShares MSCI South Korea Capped ETF (EWY) ran from $73 to $74
  • The Direxion Daily South Korea Bull 3x Shares (KORU) jumped from $52 to $55

We could see higher highs not just in Korean trades, but also in the U.S., as tensions cool.