I have been playing pick-up-sticks with DJIA on Barcharts.
Nothing technically rigorous, just using a career of looking for trends in results and data.
The first graph is a 3 yr time scale to take in the Mar/Apr 2020 Covid plunge to 18,000 and the second graph is scaled to 9 months to cover the market peak in late Jan 37,000 and the bear market since.
Toggling between the two graphs, around late April 2020, you can see the DOW take off on the rocket fuel of Covid stimulus and Fed easing. The party was over by late Jan 2020 when the Fed announced they would finally begin raising rates and clawing back bonds purchases from next meeting in response to stubborn and increasing inflation.
The market immediately began fretting about whether the increase would be 0.25% or 0.5%. When the Fed announced the first rise of 0.25% after their Mar 15-16 meeting, the market bounced, relieved the increase had only been 0.25%. The rally to a lower new high of about 35,250 was short lived and the DOW resumed a downward grind, increasing as investors fretted the next rate rise might be 0.5% as the next Fed meeting approached.
When a 0.5% rate rise was confirmed after the May 4-5 Fed meeting, I figure it dawned on investors the Fed might be serious about aggressive rate rises and tightening to combat rising inflation. The DOW decline immediately steepened and dropped all the way back to bounce off a lower trend line at about 30,700.
As the next Fed meeting on June 15-16 approached, investors were fearing and then I think resigned to a 0.75% rate rise as the DOW formed a lower again new high of about 33,250 and could not break through a new, lower upper down trend line. The DOW decline immediately steepened and dropped through a long term down trend to finally bounce off about 29,600.
What I see lately is that the DOW is likely to form a new lower high ahead of the Jul 26-27 Fed meeting. Which way the DOW moves after July 27 depends on whether the Fed goes again with another 0.75% rise, or softens to a rise of only 0.5%. Personally I think they will stick with 0.75% and, with growing fears of a recession, investors will again sell off the DOW and the long term down trend line will be tested again. If that long term down trend is broken for a second time, then I think a new, steeper lower down trend line will have been confirmed.
In the second 9 month chart I have marked up what I think are charting pennant formations leading into each of the last three Fed meetings. If that pennant forms below the 50 dma (shown), it seems to break down. If the pennant forms above and holds the 50 dma, it seems to break up.
I think I see the start of another pennant forming and we seem a long way below where the 50 dma may be … so at this stage I am leaning to another break down after Jul 27, possibly becoming evident a few days earlier as the market somehow seems to correctly preempt.
If the Fed blink first, and ease back to only 0.5% rate rise, I will be spectacularly wrong, but I think a few days later worry that the Fed have already done the damage and a recession is inevitable will begin to weigh on investors.
I am becoming quite interested with charting, but know virtually nothing about it. The commentary above is all after the fact, but it seems plausible.
If I can figure out how to get FMG onto Barcharts, I might have a look over the coming week. Mrs Dex and I have a long term view on FMG and BHP and find the dividends compelling. That doesn’t mean I want to willingly ride the price down into and out of a recession, despite history showing we should be well ahead within say 3 yrs on average.
