Is The Dow Jones Industrial Average Back From The Dead?

It’s the chart reader’s most noticeable, most storied pattern: when the 50-day moving average finally catches up to and crosses above the 200-day moving average. It just happened with the Dow Jones Industrial Average where the prices of 30 big stocks are said to have some importance. The cross-over had happened months earlier with the NASDAQ-100 NDAQ and with the Standard & Poor’s 500.

Is this incredibly bullish? It’s hard to say since so many observers will be noticing it and since it’s the most obvious and easy tool in the technical analysis toolbox. Once everyone is looking at the same thing, the shine begins to come off. A good case could probably be made that it’s coming so late in the rally from mid-March — compared to the other big indexes — that it’s mostly meaningless.

Or, it could be for real, given the substantial efforts of the U.S. Treasury and the Federal Reserve to keep things perky and sweet, however misleading and ridiculous. You would have to ignore the potential for a worse fall and winter of Covid-19 but maybe the large institutional investors being propped up are in denial.

The Dow Jones Industrial Average daily price chart looks like this now:

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Where the 50-day moving average crossed below the 200-day moving average is red-circled back in mid-March when the selling hit about everything. Since that time, the Dow has rallied in fits and spurts (compared to the NASDAQ-100) without re-taking the old highs.

However, it’s considered a good sign by some analysts that the 50-day moving average is now rising back above the 200-day moving average — the red circle on the right side of the price chart. A good sign that comes with no guarantees about future price direction. All that can be said is that upward momentum is now confirmed by at least one old school measure.

Dow Jones Industrial’s look like this on a weekly basis:

You can see how far the average remains from the all time highs hit at the beginning of the year — the Dow has not kept up at all with the NASDAQ-100 which has been hitting new all-time highs. Note how the green 200-week moving average line continues upward but the 50-week moving average seems to have peaked.

The Dow Jones Industrial Average monthly price chart looks like this:

The 200-month moving average and the 50-month moving average are still headed upward. They’ve been headed that way since 2012. What might cause concern for the observant chart analyst is the obvious divergences taking place on the relative strength indicator (RSI) above the price chart and on the moving average convergence/divergence indicator (MACD) below it. Note how price continues upward as these measures point downward from 2018 to the present.

Whether this moving average crossover on the daily Dow chart is meaningful remains to be seen. You would have to be cautious considering the potential for the virus to spread, the uncertainty of the elections and the generally negative seasonality for stocks headed into October/November.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.

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