Observation On The Dow Jones Industrials
One thing I always look for in the market are patterns. There are all kinds of patterns such as seasonal, open to close patterns, time of day patterns, price patterns, inter market relationship patterns, fade your favorite analyst pattern, range contraction and range expansion.....etc.
For example when I am day trading, I'll look to see what time of day money tends to come into the market. Sometimes it's uncanny how trending moves can be predicted if you are aware of when money enters and leaves the market.
On a much longer time frame let's take a look at a pattern I've been watching on the Dow Jones Industrials ever since this uptrend began which is from July 2006.
Above is a weekly chart of the Diamonds (DIA) with a 10 week moving average which is the same as the 50 day moving average.
Look at the chart carefully and you will notice a pattern. The second week of every month tends to be an up week. In other words, the second week of the month tends to close above the open every time since this rally began. Not only is money coming into the Dow the second week of the month, but it also tends to be the largest week of the month.
How can you take advantage of this pattern? Well you can buy the Diamonds on Monday morning and exit on Friday's close that's one way. Another way might be to only take buy signals next week if you are day trading. This is probably how I will trade this pattern.
Will next week be an up week in the Dow? Will next week also be the largest week of the month? We'll find out next Friday.
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5 comments:
Excellent observation. I'll be on the lookout for this one next week.
Kevin,
Nice observation. How do they determine which weeks make up each candlestick on these weekly charts? If you notice sometimes the second candlestick on the weekly charts are the third week of the month not the second.
The second Monday of the month starts the second week.
Hmm... the SPX closed below short term support at 1440 and on rising volume. I think I would tend to be more bearish here unless we get a very quick recovery back above 1440. Also I've notice that so far in this bull whenever the S&P penetrates above the upper 10 week bollinger band after an intermediate move has matured (4 months or more)it has been within a percent or two of the final top. Two weeks ago the SPX closed above the upper band. Last week was down so the trend is holding so far. Victor Sperandoe noticed that often times a long intermediate run will conclude with a run of 4 or more days in a row either up or down. The first day in the opposite direction signaling a trend change. All the major markets topped with 4 or more days a couple of weeks ago. It is amazing how many times this indicator has worked. It signalled the trend change in the Dow in May. It does give false signals from time to time but coupled with closing above the upper bollinger band and the large commercial short position in the COT report and the extremely long duration of not only this bull market but also this leg up. I would not want to ignore the warning signs. You might not want to be short but I certainly wouldn't want to bet against the smart money and be long here.
Good post Gary...
I'm not bullish on stocks at all.. The chart I posted of the dow represents only 30 stocks and suggests a rally in the Dow for this week. Like I said, if I do buy dow stocks this coming week, it will be only for day trades. It's quite possible we may see the Dow strong this week while the NASDAQ moves lower.
I'm still cautious on the NASDAQ but I'd like to see more than one down day before I get short again. It seems to me that the Q's have done nothing for two months so I'm not going to get involved. I'd rather trade stocks or ETF's that are trending or at least moving.
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