Most in the media are touting that the Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite will soon be setting new all-time closing highs. This measure is meaningless as technicians draw trends through all-time intraday highs. It is so misleading in hindsight if an average sets a new closing high then fails to set a new intraday high.
I am not saying that closes are not important. They are used to track moving averages and weekly, monthly, quarterly, semiannual and annual closes are the inputs to my proprietary analytics.
Here’s an important reason for tracking both closing highs and lows and intraday highs and lows. Most think all five major averages set their lows on Christmas Eve. Not so, the Dow and S&P set their intraday lows on December 26. This is true for so many stocks! For almost all tickers that set their intraday lows on December 26 that day was a “key reversal,” which was a signal that a tradeable rally would begin. If you tracked only closing lows, you missed this important buy signal.
All five major equity averages are in bull market territory from their December 14 or Decenber 26 Christmas lows. The Dow Jones Industrial Average is up 21.6% from its December 26 intraday low of 21,712.53 and is just 2% below its all-time intraday high of 26,951.81 set on October 3. The S&P 500 is up 23.9% from its December 26 intraday low of 2,346.58 and is just 1.1% below its all-time intraday high of 2,940.91 set on September 21. The Nasdaq Composite is up 29% from its December 24 intraday low of 6,190.17 and is just 1.8% below its all-time intraday high of 8,133.30 set on August. 30.
To complete the analysis, the Dow Jones Transportation Average is up 26.3% above its December 24 intraday low of 8,636.79 but is 6.1% below its all-time intraday high of 11,623.58 set on September 14. The Russell 2000 is 25.1% above its December 24 intraday low of 1,266.92 but is 9.0% below its all-time intraday high of 1,742.09 set on August 31.
Here’s Last Week’s Scorecard
- The Dow Jones Industrial Average (26,412.30 on April 12) is above its annual pivot at 25.819 and above its 200-day simple moving average of 25,267.37. My monthly and semiannual value levels are 25,513 and 24,340, respectively, with its annual pivot at 25,819 and weekly pivot at 26,125. The all-time intraday high of 26,951.81 was set on October 3 and its second quarter risky level is 27,891. Its weekly chart is positive but overbought.
- The S&P 500 (2,907.41 on April 12) is above its 200-day simple moving average of 2,762.55 and above its annual pivot at 2,867.1. My monthly and semiannual value levels are 2,728.5 and 2,668.8, respectively, with the annual pivot at 2,867.1 and weekly pivot at 2,892.1. The all-time intraday high of 2,940.91 was set on September 21 with its second quarterly risky level at 2,985.1. Its weekly chart is positive but overbought and has become an “inflating parabolic bubble.”
- The Nasdaq Composite (7,984.16 on April 12) remains above its 200-day simple moving average of 7,501.17. My monthly, annual and semiannual value levels are 7,373, 7,370 and 7,274, respectively, with a weekly pivot at 7,972. The all-time intraday high of 8,133.30 was set on August 30 with the quarterly risky level at 8,367. Its weekly chart is positive but overbought and has become an “inflating parabolic bubble.”
- The Dow Transportation Average (10,912.19 on April 12) remains above its 200-day simple moving average of 10,499.16. My monthly and semiannual value levels are 9,858 and 8,858, respectively, with a weekly pivot at 10,433 and annual and quarterly risky levels at 10,976 and 11,372, respectively, with its all-time intraday high of 11,623.58 set on September 14. Its weekly chart is positive but overbought.
- The Russell 2000 (1,584.80 on April 12) is just above its 200-day simple moving average at 1,571.79 and a weekly pivot at 1,553.66. My semiannual and monthly value levels are 1,504.17 and 1,436.97, respectively, with annual and quarterly risky levels at 1,612.54 and 1,667.15, respectively, with its all-time intraday high of 1,742.09 set on August 31. Its weekly chart is positive, but its weekly stochastic reading is just below the overbought threshold of 80.00.
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on December 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March. 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.
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. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an “inflating parabolic bubble” as a bubble always pops. I also call a reading below 10.00 as being “too cheap to ignore.”