The Dow Jones Industrial Average traded as low as 18,213.65 on March 23 then rebounded by about 23%. I have been touting the monthly chart for the Dow and its 120-month simple moving average.
Here’s The Monthly Chart For The Dow
Courtesy of Refinitiv XENITH
The green line is the 120-month simple moving average. Each vertical line is a month going back to the beginning of the 21st Century. Note how this average held in late 2002 into March 2003. See how this average failed to hold during the Crash of 2008. The average became the uptrend again in the fourth quarter of 2011. The average held at the March 23 low.
Here’s Last Week’s Scorecard
Describing the Weekly Charts
The weekly chart for the Dow Jones Industrial Average remains negative with the average below its five-week modified moving average at 24,540. Its 12x3x3 weekly slow stochastic reading declined to 31.54 last week, down from 37.85 on March 20. The Dow is well below its 200-week simple moving average or “reversion to the mean” is 23,643. The Dow is well below its annual and semiannual risky levels at 29,964 and 30,361, respectively.
The weekly chart for the S&P 500 remains negative with the index below its five-week modified moving average at 2,847.8. Its 12x3x3 weekly slow stochastic reading declined to 33.07 last week, down from 40.16 on March 20. This index is well below it 200-week simple moving average or reversion to the mean at 2,643.4. Its semiannual and annual risky levels are 3.303.4 and 3,466.5, respectively.
The weekly chart for the Nasdaq remains negative with the index below its five-week modified moving average at 8,243.4. Its 12x3x3 weekly slow stochastic reading declined to 33.76 last week, down from 40.81 on March 20. The Nasdaq traded below its 200-week simple moving average or reversion to the mean at 6,992.6 the past weeks but ended last week above it. Its semiannual and annual risky levels are 9,074 and 9,352, respectively.
The weekly chart for the Dow Jones Transportation Average remains negative with the average below its five-week modified moving average at 8,902. Its 12x3x3 weekly slow stochastic reading declined to 21.27 last week, down from 23.74 on March 20. This average will become oversold this week. The average is way below its 200-week simple moving average or reversion to the mean at 9,854. Transports set its all-time intraday high of 11,623.58 back on September 14, 2018.
The weekly chart for the Russell 2000 remains negative with this average below its five-week modified moving average at 1,356.76. It’s 12x3x3 weekly slow stochastic reading declined to 24.41 last week, down from 29.09 on March 20. It’s well below its 200-week simple moving average or reversion to the mean rose to 1,476.41. The small-cap index set its all-time intraday high of 1,742.09 back on August 31, 2018.
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.
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