Here’s Why This Week Is A Key For The Dow

(Photo credit should read Bryan R. Smith) AFP via Getty Images The Dow Jones Industrial Average traded as high as 24,...

The Dow Jones Industrial Average traded as high as 24,108 last week but could not sustain gains above the 24,000 “hat” (1,000-point milestone).

The weekly chart for the Dow is no longer positive as the average ended the week below its five-week modified moving average at 23,877. It still has a rising reading for its 12x3x3 weekly slow stochastic reading. The weekly chart is thus neutral.

If the Dow begins the week with a gap below its 200-week simple moving average at 23,753 the downside risk is significant. This week’s value level is 20,463.

Here is the Weekly Chart for the Dow

Courtesy of Refinitiv Xenith

Why the concern? Earnings guidance! Almost every company that has reported so far warned by saying that the are not offering forward guidance because of the Covid-19 pandemic.

This week on Wednesday, April 29 we focus on the FOMC Policy Statement and Real GDP for the first quarter. With the economy almost totally closed given that many states are on lockdown, second quarter earnings will be bleak!

Some say that once the warm summer weather arrives the so-called curve will roll-over. I say not so fast!

I think the notion that hot, sunny and humid weather will slow the growth on Covid-19 is wrong. Come to Florida where cases are still rising every day. It has been sunny, hot, and humid almost every day since March. Singapore is having a tough time, too. I live in Pasco County Florida and last week the number of cases rose from 196 to 229.

The Dow is down 16.7% year-to-date and is 19.6% below its all-time intraday high of 29,568 set on February 12. It’s also in bull market territory, 30.5% above its March 23 low of 18,214.

Here is the Monthly Chart for the Dow

Courtesy of Refinitiv Xhenith

This chart helped me call for a bear market correction. I made the call as the 120-month simple moving average held on March 23. This moving average is now at 18,140.

The Dow is also trading between the 19,000 hat and the 24,000 hat. My monthly and quarterly risky levels are above the 25,000 hat at 25,237 and 26,091, respectively. The monthly level will change next week as the April close is input to my proprietary analytics to establish a monthly level for May.

My Dow Hat Indicator

Since the 2016 presidential election the Dow Jones Industrial Average began to climb above 1,000-point milestones beginning with Dow 18,000. Each time a new milestone was reached the traders on the floor of the New York Stock Exchange passed out baseball hats with the latest milestone on the hat. Since Dow 18,000 there have been 11 additional hats passed around up to the Dow 29,000-Hat which was crossed as 2020 began.

The Dow slipped below each of these hats between February 21 and March 23. That is a lot of lost caps within one month. Last Friday, the Dow briefly closed above the 24,000-hat. The “Dow Hat Indicator” rose to 55% (6 divided by 11). The Dow gained back more than half the hats.

Dow 22,000 was crossed on April 6. Dow 23,000 was crossed on April 7 and Dow 24,000 was crossed on April 17. The “Dow Hat Indicator” weighs each 1,000-point move equally. As the Dow rose from 18,000 to 29,000 each 1,000-point rise was a smaller percent gain.

How to use my value levels and risky levels:

The closes on December 31, 2019 were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April will be established based upon the March 31 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.


Want to learn how to integrate trading levels into your everyday trading strategy? Check out my new publication, 2-Second Trader.

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Newsrust: Here’s Why This Week Is A Key For The Dow
Here’s Why This Week Is A Key For The Dow
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