Dow Jones Report & TCI Trading Signal

• Asset: Dow Jones Industrial Average (DJIA)
• Period: September-October 2015

TCI Forecast: DJIA to complete its uptrend in September (↑) and start a new bear market in early October (↓)

Since July 20, 2015, the Dow Jones has dropped significantly, from 18,137 points to 16,102 points. Several factors may explain why investor sentiment shifted quickly from bullish to bearish. However, the main driver now seems to be fragile investor psychology rather than strong fundamental data. US equity markets have been rising for seven years straight since 2009, so a sharp correction might be due to bring valuations back to a more reasonable level.

Is the Dow Jones expensive today based on earnings? Let’s look at how the P/Es and dividend yields (%) of US markets stand after the August decline.

Dow Jones, S&P 500, and Nasdaq Earnings Report

Here are the P/Es and dividend yields for the major US equity indices as of September 4, 2015.

+Today: September, 4th 2015

Read more: Dow Jones September-October 2015

The Struggle of Humans with Change

Humankind has always struggled with change, and it is even harder to grasp how much the macroeconomic landscape has shifted in the past few years. The unseen economic impact of the pandemic led central banks to cut interest rates and increase market liquidity to record levels. In this environment of extreme liquidity and near-zero risk-free returns, the rally in equities and other hard assets was both reasonable and expected. Equally reasonable and expected was the recent market correction. It’s important to remember that from the March 2020 lows, equities rose over 100% without a significant pullback.

Read more: The Stock Market in 2021-2022

Global Markets and Nasdaq Composite Report -A Correction is healthier than a bubble

Recently, US stock markets—along with other major markets around the world—have faced significant selling pressure. Many analysts believe equities are overpriced, while others argue that US economic growth and corporate earnings justify even higher market valuations. In the bond market, US bonds are also under pressure. As hedge fund manager Leon Cooperman put it: “Investors buying bonds right now are playing with dynamite.”

In this analysis, we will look at what could happen next in global markets, with a focus on the Nasdaq Composite. Whatever the conclusion, don’t panic—if you decide to exit the market, you will have the chance to do so properly.

Cash Will Be King Again – It Always Is in the End

In one of our past analyses, we noted that the current bullish cycle in global capital markets was nearing its end. This forecast was based on both fundamental and technical analysis. We also said, “Cash will be king again; it always becomes king at the end.” For some investors, this prediction has worked in their favor—while for many others, unfortunately, it has not.

What Happens Next for the US and Global Equity Markets

To assess the current market situation and forecast what comes next, we first need to consider some key points about US stock markets:

(a) Reasons for the Stock Markets to Rise (↑)

√ The US economy is enjoying steady growth and is stronger than at any time since 2008.

√ Unemployment is falling and incomes are rising.

√ Corporate earnings are strong, and according to some analysts—such as Goldman Sachs’ David Kostin—many investment opportunities remain in the market.

🔗 Link: » Goldman’s Recent Report on S&P

√ There is still excessive liquidity in the market, driven by the almost-zero interest rates

Read more: Nasdaq Trading Signal October 2014

Dow Jones Industrial and the Duration of the Bull Market

The Dow Jones Industrial Average (Dow 30) is one of the best stock-market indices to test a technical analysis system. Being such an old index, it offers unique insights from historical data. Recently, the Dow Jones reached a price area near its historical highs. Using both fundamental and technical analysis, we will explore what might happen next. But first, let’s look at the signal.

From a Macroeconomic Point of View

The US economy is in much better shape than two years ago. Growth is steady, unemployment is falling, and confidence in the US financial system is improving. However, two main factors could threaten this positive outlook:

Factor 1: The European Crisis

The European crisis remains a major concern for the global economy. In 2013, Europe is officially in recession, and political instability in Southern Europe made the economic outlook uncertain. For now, the latest chapter of the European crisis (the Cyprus Crisis) seems to be ending, and things in Europe may return to normal in the coming weeks.

Factor 2: A Stronger Dollar

As unemployment falls and the US economy grows, the FED’s focus is shifting toward inflation. US interest rates are likely to rise. Higher US rates, combined with Europe’s weak economy, could strengthen the Dollar against the Euro, possibly down to 1.20 or even 1.00 over the next few years. This could threaten the US economy’s growth. For now, however, the Euro is already oversold against the Dollar and is expected to stay above 1.2900 for some time. So, in the coming weeks, a stronger US Dollar is unlikely to harm the US economy or the Dow Jones Industrial Index.

Read more: Dow Jones Industrial March 2013

TCI Trading Signals and the NASDAQ Composite Analysis for May 2014

“Cash will be king again; it always is king in the end.”

This TCI analysis focuses on the Nasdaq Composite Index. We will examine the Nasdaq Composite and forecast its path for the coming years. But first, let’s review our previous TCI signal on GBPUSD.

Previous TCI Forex Trading Signal

In our last trading signal published on April 28th, we forecasted an uptrend for the British Pound against the US Dollar using the TCI model.

“TCI is a technical analysis model developed entirely in-house by TradingCenter.org.”

At that time, GBPUSD was trading at 1.6845. Our target price was 1.7000, with May 6th set as the selling target date. After May 6th, we predicted a correction, as shown in the original report and the TCI table. GBPUSD actually reached 1.6956 on May 6th, 2014. After that, a strong correction began, as forecasted, pushing GBPUSD down to 1.6730 on May 14th. Now, GBPUSD trades around 1.6820. Although the 1.7000 level was nearly reached, the GBPUSD TCI signal was confirmed.

TCI Indications on Nasdaq Composite for May 2014

As mentioned before, the real strength of TCI is its ability to predict timing. Using the TCI-Short Model (TCI v1.2), we forecast the Nasdaq Composite’s movement for May 2014. TCI points to a short-term bullish trend ending on May 27th, 2014.

■ Selling Target: 27th of May 2014

Read more: NASDAQ Composite Index May 2014

US Dollar Index & Dow Jones Industrial (March-April 2017)

■ Markets: Foreign Exchange, Equity Markets

■ Assets: US Dollar Index (USDX) / US30 (DJIA)

Global Financial Markets –The General Outlook

After Donald Trump’s election, investors expect high inflation to return in the US. Several factors support this view, including Trump’s policies on tax cuts, increased public investment, and tariffs on imported industrial goods. Lower unemployment and rising wages also boost the chance of higher consumer prices ahead. These inflation expectations create positive momentum for the US Dollar and equity markets.

On the other hand, higher inflation usually means higher interest rates, which signals an end to the bullish bond market of the past 30 years. Since November 2016, about $4 trillion has shifted from bonds to equities.

Regarding equities, the VIX volatility index remains near historic lows, suggesting the equity rally will continue—at least for now.

Chart: CBOE VIX Volatility Chart (S&P500)

Applying TCI on USDX & Dow Jones Industrial

The Trading Center Indicator (TCI) is applied to the US Dollar Index (USDX) and the Dow Jones Industrial Average (DJIA). The chart below shows the daily TCI signals from November 2010 to March 2017. The USDX chart (top) includes the 89-day simple moving average (SMA), while the DJIA chart (bottom) shows the 144-day SMA.

Read more: USDX and DJIA March-April 2017

TRADING CENTER INDICATOR (TCI): TECHNICAL ANALYSIS ON DOW JONES INDUSTRIAL

The Dow Jones Industrial Average closed on Friday, November 16th, at 12,588.31 points. The downtrend that started one month ago is continuing. In mid-October 2012, Dow was around 13,661 points, so it has dropped more than 1,000 points since then. To estimate how long this downtrend may last, we applied the TCI Indicator to the Dow Jones Industrial Average, and here are the results.

TCI on Dow at a Glance:

• Dow Price: 12,588.31
• Short-Term Trend: ↓
• Mid-Term Trend: Possible Rebound, ↑
• Possible Turnaround Dates: November 20 / November 30

TCI Indicator on Dow Jones

The table below shows recent daily data for the Dow Industrial, with the last column displaying the daily TCI indicator value. It’s clear that the Dow is trading inside a strong downtrend channel. The current TCI reading is about -11.02 (based on the Dow closing at 12,588 points). Historically, this TCI level has offered traders good returns of 5–10%.

Read more: TCI Trading Signal on Dow Jones November 2012