Coming into 2015, the major US Stock Market Indexes like the Dow Industrial Average and S&P500 were not areas where we wanted to be putting new money to work. Not only did we have failed breakouts around the holidays which is always a bad sign, but I felt we needed some consolidation, or digestion, of the gains over the past few years. Markets can consolidate gains in one of two ways, either with a downside correction in price or sideways through time. The latter is obviously the healthier version of the two.
Today I want to take a look at a few of the Major US Stock Market Indexes to show how these averages have been consolidating over the past several months. The first one is the S&P500 representing 500 of the largest corporations in America. Look at price trading within these two converging trendlines and essentially at the same price that it was in early November:
The next chart is the Dow Jones Industrial Average which includes 30 humongous US Stocks. Notice how similar this pattern is to the S&P500. Prices are right where they were in early November and trading within this symmetrical triangle looking formation defined by two converging trendlines:
The Nasdaq100 is more of a tech heavy index containing 100 of the largest companies that trade on the Nasdaq. In this case, we don’t have a symmetrical triangle, but more of a sideways range. Notice once again how prices are right where they were in early November:
And finally here is the Dow Jones Transportation Average. This index contains 20 big market-cap stocks related to transportation including airlines, railroads, shipping companies, etc. One more time we can see prices near where they were in early November and trading within a 3 month range defined by two somewhat parallel trendlines:
I think the main takeaway here from these 4 large-cap Indexes is that we are stuck in a range. Although it might seem frustrating to some short-term traders, this is not necessarily a bad thing bigger picture. Now what we want to see are breakouts above the upper trendlines in each of these charts. Until then, I don’t see any reason to be involved in the major averages.
To me, it’s important to look at each of the averages and compare them to one another. Are they telling different stories? Or are they telling us the same thing? There is no Holy Grail when it comes to the market. It’s more of a weight-of-the-evidence kind of thing. And right now, the weight-of-the-evidence suggests that tactically there are better places to be that in the major US Stock Market Indexes. Until we break above the upper end of those ranges, I would expect more choppiness. Who needs that?
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Tags: $DJIA $DIA $SPY $SPX $ES_F $YM_F $NDX $QQQ $NQ_F $TRAN $DJT $DJI $IYT