Dow, S&P 500 and Nasdaq Show Signs of a Bottom on Weekly Charts

Positive technical divergences are forming on the weekly charts for the Dow, S&P 500 and the Nasdaq.
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Positive technical divergences are forming on the weekly charts for the Dow, S&P 500 and the Nasdaq.

The Dow Jones Industrial Average ^DJI set its all-time intraday high of 29,568.57 on Feb. 12. 

The S&P 500 SPX and the Nasdaq Composite IXIC set their all-time intraday highs - 3,339.52 and 9,838.37, respectively - on Feb. 19.

All set their lows on March 23: the Dow 30 at 18,213.65, the S&P 500 at 2,191.86 and the Nasdaq at 6,631.42.

From highs to lows the Dow lost 38.4%, the S&P lost 35.4% and the Nasdaq lost 32.6%.

The high end of the trading ranges is 22,595 for the Dow 30, 2,641.39 on the S&P and 7,880.31 for the Nasdaq.

The Monthly Chart for the Dow 30

Monthly Chart for the Dow

Monthly Chart for the Dow

Courtesy of Refinitiv XENITH

The monthly chart for the Dow 30 is the most important to observe. 

Each price bar represents a month going back to the beginning of the 21 st century. The green line is the 120-month simple moving average.

The moving average provided a buying opportunity between October 2002 and March 2003.

This moving average failed to hold during the crash of 2008.

The March 2009 low was a V-shaped bottom, and once the 120-month SMA was penetrated and held in October 2011, the bull market took off.

The March 2020 low of 18,213 held the 120-month SMA as a buying opportunity. I say that this was the bottom. 

If I am wrong the next downside is to the October 2007 high of 14,198.

The Weekly Chart for the Dow 30

Weekly Chart For The Dow

Weekly Chart For The Dow

Courtesy of Refinitiv XENITH

The weekly chart for the Dow will be neutral if the average stays above 22,000. 

The Dow is below its five-week modified moving average at 23,473. It’s also below its 200-week simple moving average, or reversion to the mean, at 23,680.

The 12x3x3 weekly slow stochastic reading is projected to rise slightly to 28.1 from 27.42 on April 3.

At the all-time high the average was above the 90 threshold putting the Dow in an inflating parabolic bubble formation. 

This bubble popped, with the Dow falling into a bear market 38.4% below its all-time high.

If the weekly chart shifts to positive, the upside is to its monthly and quarterly risky levels at 25,237 and 26,091.

The Weekly Chart for the S&P 500

Weekly Chart For The S&P 500

Weekly Chart For The S&P 500

Courtesy of Refinitiv XENITH

The weekly chart for the S&P will be upgraded to neutral if the index is above 2,600 at this week’s close. 

The S&P is below its five-week modified moving average at 2,741.4. It’s also below its 200-week simple moving average, or reversion to the mean, at 2,647.9. 

The 12x3x3 weekly slow stochastic reading is projected to uptick to 28.64 this week from 28.27 on April 3. 

At the all-time high this index was above the 90 threshold, putting the S&P in an inflating parabolic bubble formation. 

This bubble popped, with the S&P falling into a bear market 35.4% below its all-time high.

If the weekly chart shifts to positive, the upside is to its monthly and quarterly risky levels at 2,944.4 and 2,979.6.

The Weekly Chart for the Nasdaq

Weekly Chart For The Nasdaq

Weekly Chart For The Nasdaq

Courtesy of Refinitiv XENITH

The weekly chart for the Nasdaq is negative, with the index below its five-week modified moving average at 7,998.6. 

It’s above its 200-week simple moving average, or reversion to the mean, at 7,018.9. That's a positive.

The 12x3x3 weekly slow stochastic reading is projected to decline to 28.53 this week from 28.78 on April 3. 

At the all-time high this index was above the 90 threshold, putting the Nasdaq in an inflating parabolic bubble formation. 

This bubble popped, with the Nasdaq falling into a bear market 32.8% below its all-time high.

If the weekly chart shifts to positive, the upside is to its monthly and quarterly risky levels at 8,494 and 8,559.

How to use my value levels and risky levels:

The closes on Dec. 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 were 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.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.