Category Archives: DJIA

Market Return After Exceptional Year – 2023

It’s no secret that 2023 was an exceptional year to be long the market. S&P 500 gained 23.8% while the Dow Jones Industrial Average rose 13.7%. In this review, we review the historical return of the subsequent year after a strong market uptrend. This frame work provide an objective view for market performance from historical pattern. For more on this work, review or original post here. Continue reading

DJIA Downside Targets

Below is our update on the Dow Jones Industrial Average applying Dow’s Theory. Continue reading

Market Historical Returns and Subsequent Year

Major indexes ended the year down -10% to -30% for the year. Tables below shows the historical market return and what occurred in the subsequent year. Hopefully this provides some framework of what to expect in 2023. Continue reading

Dow Jones Industrial Average Price Momentum

Below is a chart of Dow Jones Industrial Average from January 1, 2007 to November 11, 2022, reflecting Price Momentum data.

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Dow and S&P 500 Comparable Levels $SPX

This is an update to a comparison we did showing how alike the the two indexes, Dow Jones Industrial Average and S&P 500, are: Continue reading

$DJIA : Date and Price of Expected Lows

Below are the targets for the Dow Jones Industrial Average. Continue reading

Dow Price Momentum

Below is a chart of Dow Jones Industrial Average from January 1, 2007 to May 2, 2022, reflecting Price Momentum data.

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When the Fed Tried But Couldn’t Crush Stocks

By the logic of many, the stock market is being propped by the Federal Reserve.  How is the Fed propping the stock market? Pushing interest rates down and keeping them down and possibly considering going negative on rates.

As we’ve consistently maintained, the Fed doesn’t matter.  The following is an example of when it appeared as though the Fed was doing everything in their power to undermine the rise in the stock market.

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The standard arguments to the increase of the Dow Jones Industrial Average include the New Deal programs implemented in 1933 and/or WWII which began in 1939.  These claims sound good but don’t quite explain the reversal of the Dow Jones Industrial Average in July 1932.

If the claim is that the Fed is propping the stock market now then it is because an examination of the extensive history of rate increases from 1942 to 1968 hasn’t been reviewed.

Finally, if the claim is that the Fed is bound and determined to use every tool in the playbook to increase the stock market, then by the record of the period from 1934 to 1971, we should see the discount rate increase ten times and a constant fiddling with the margin rate.

It is possible that the low rates and unlimited “stimulus” measure is actually capping the rise of the stock market.

1920-2020: Dow YoY Dividend Change

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See also:

Are the S&P 500 and the Dow exactly the same?

We can’t emphasize enough how we are not stock market bulls.  We simply present the data. 

In fact, we have a bearish leaning bias after critically reading the work of Richard Russell from the 1990’s until his passing in 2015.  Below we are going to take an unusual and highly suspect look at the similarities between the S&P 500 Index and the Dow Jones Industrial Average.

Revealing the Truth about the Market

Many market observers complain how irrelevant the Dow Jones Industrial Average is, lacking 470 companies and being price weighted.  However, the Dow Jones Industrial Average is the perfect conservative model for future outcomes of the S&P 500 Index.

Did you know?

From a level of 810 to 2,749, on the S&P 500, it took approximately 5,820 trading days from February 24, 1997 to April 8, 2020.  In the same number of trading days, the Dow Jones Industrial Average increased from 810 on August 18, 1966 to 2,759 by October 12, 1989.

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What the Dow Did was Staggering

If we step back from the already stunning revelation above and look at the bigger picture, there is more to this scenario than meets the eyes.  For example, our starting point at 1966, the Dow Jones Industrial Average was coming off of the biggest bull market in history.  From the low in 1942, the Dow increased from 92.92 to as high as 995.15 in 1966, a +971% increase.

A 10-fold increase sounds enticing, however, this was with the backdrop of rising interest rates and growing national debt.  For a sense of perspective on the overall sentiment at the time, the following is from Richard Russell’s Dow Theory Letter in 1967:

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It wasn’t until the economy faced the uncertainty of interest rates (fear that rates would not continue to climb) in 1966, that the market fell apart and began trading in a range until 1982 (1966-1982).

What Does This Mean?

The Dow Jones Industrial Average was a stodgy heavy industry index when it managed to accomplish from 1966 to 1989 what the S&P 500 has accomplished in the heavily weighted technology index has accomplished from 1997 to 2020.  There should be critical questions for those who claim that the S&P 500 is better than the Dow Jones Industrial Average.

Based on the data above, there is absolutely zero difference between the two indexes when put into the proper context.  For now, we have painted a general picture of how the two indexes matched performance over exactly the same period of time.  In our next posting, we explore what the future holds for both indexes.

see also:

1900-2020: Dow in Years Ending in Zero

This from Richard Russell’s Dow Theory Letters dated December 19, 1979:

“Note that all the zero years have started poorly and have been in a state of collapse by their 5th month (May). The single exception since 1900 was the year 1950 (Issue 772. page 2.).”

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How have the  “zero years” from 1980 to 2020 done?

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In the period from 1900 to 2020, that average percentage change has been -5.65%.  The average percentage change from 1980 to 2020 has been +0.62%.

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Not much can be gleaned from this perspective other than the zero years having below average market returns [+8.64% inflation adjusted] 77% of the time.

The Dow’s 10-Year Targets

Below are the valuation targets for the Dow Jones Industrial Average (DJIA) for the next 10 years. Continue reading

DJIA: Downside Targets

On February 3, 2018, we said the following:

“In the past, we would normally apply the more passive Dow Theory downside targets instead of Edson Gould’s Speed Resistance Line.  However, with the late stage parabolic move in the Dow Jones Industrial Average, the more aggressive downside targets are necessary in this instance.”

Our decision to utilize the “more aggressive downside targets” has proven to be well founded.  However, since the February 3, 2018, a new peak has been achieved which provides different downside targets.  This leads to an update of the downside and upside targets.

Below are the updates with extensive review of what to watch for (skip to the bottom for the Summary). Continue reading

2020 v. 2008: You Are Here

On March 23, 2020, the Federal Reserve announced that they are standing ready to provide unlimited quantitative easing. Among the actions included in Fed’s announcement:

  • The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities
  • the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.
  • Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing.
  • Establishment of two facilities to support credit to large employers
  • Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses.
  • expanding the Money Market Mutual Fund Liquidity Facility (MMLF)
  • Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF)
  • establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses

This action by the Federal Reserve seems eerily familiar to us.  Why?  Because March 2008 was the year many of these same programs were implemented by the Federal Reserve.

Below is a chart of the Dow Jones Industrial Average covering the 2007 to 2009 period when the Fed stepped in in a similar way.

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The position of where you are can change very quickly based on the type of policy action taken.  The less policy action the faster the market gets closer to the “bottom.”

The Most Dreaded Chart of Boeing

As we enter the bailout phase of Boeing, there is one chart that should alarm all investors.

Since the low in the stock market on March 9, 2009, Boeing (BA), (as of March 20, 2020) has gained approximately +206%.

In the same period of time (March 9, 2009-March 20, 2020), the Dow Jones Industrial Average has increased +192%.

Let that sink in for a minute.  We are about to bail out a company that as of March 20, 2020 has exceeded the gains of the Dow Jones Industrial Average since the March 2009 low.

Now, Let’s look at the chart that should be causing dread for all investors.

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The comparison between Boeing and the Dow Jones Industrial Average, when drawn on a relative basis, shows the extent of the bubble in the price of Boeing stock.

Defenders of the Boeing bailout say that the total shutdown of the airline industry and the coronavirus are the reasons that Boeing is suffering more than usual.  However, when viewed on a relative basis against the Dow Jones Industrial Average, which Boeing is a part of, we can only conclude that Boeing is only reverting to the mean.

As noted above  (206% v. 192%), the mean has not been reached and as Charles H. Dow has said, the reaction will swing to the opposite direction before being resting at the mean.

see also: Dow Theory’s December 2018 Bear Market Indication