Correction to first paragraph from last week:
The Dow Jones Industrial AverageSM (INDU) has peaked in April on an intermediate term basis for the last two years, making one ask, “How are things looking now?”
Continuing on the subject of long-term trends, sometimes keeping it simple can provide clarity. Figures 1a & b provide daily line chart views for INDU from Aug 1954 though Dec 1982 (a) and Dec 1982 to present (b), both on log scales. The ProfitSource [PS] chart also includes:
- Volume Bars
- A 50-day & 200-day simple moving average [SMA] for price
- A 50-day SMA for volume
Although daily charts are more typically associated with shorter-term trends, the price data can be compressed sufficiently to view longer-term trends. Using a thin, light colored line for price and heavier, darker lines for the smoothed SMAs, the impact of shorter-term noise is minimized to the eye.
Similarly, certain volume trends become clearer when the SMA appears more prominently than the volume bars. Use of a 50-day SMA highlights the intermediate-term trend while the 200-day SMA on price is more reflective of longer-term trends. Of course, these values are subjective and both investors and traders can benefit from identifying timeframes that represent intermediate-term and long-term for them.
Figure 1a INDU Daily Line Chart with SMA, Volume & Volume SMA (1954-1982)
Figure 1a shows that volume held steady then began to climb, peaking towards the end of 1982 as a new bullish rally got underway. At the same time, these levels pale in comparison to those realized last decade (Figure 1b).
Figure 1b INDU Daily Line Chart with SMA, Volume & Volume SMA (1982-2012)
The following can be noted in these views:
- The most recent rally exceeded the 2011 index peak, but has done so on declining volume as seen by the downward trending 50-day SMA.
- The highest spike in the 50-day SMA on volume occurred right after the Mar 2009 low and subsequent spikes have similarly coincided with INDU declines.
- While slightly more difficult to discern, dips in the 50-day SMA (pink) versus 200-day SMA (blue) have been deeper in this rally compared to the rally from the 2002 lows.
- It’s certainly possible the flattening of the 200-day SMA in late 2011 merely reflects a pause, but it seems the slight up-tick we’ve seen in this longer-term SMA will need some volume soon for INDU to continue on its bullish path.
More indicators could be added to these charts to gain insight on the intermediate-term and longer-term trend; however, sometimes it’s good to just keep things simple.
Clare White, CMT
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site
Questions for Clare? Please visit the discussion board on the homepage of Optionetics.com.
