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.

When Fundamentals Are Stable, Market Psychology Rules

Overall, the US economy’s fundamentals are solid, so what happens to the Dow 30 in the next few weeks will largely depend on investor psychology. The best way to measure market psychology is through technical analysis, which is exactly what we will use below.

Dow Chart Since 1935 and Technical Analysis Using the TCI System

Chart: Dow Industrial Line Chart 1935-2013 and TCI Technical Analysis

In the upper part of the chart, we see the Dow 30 Line Chart from January 1935 to March 2013. On March 22, 2013, the Dow Jones closed at 14,512.03, a historic high. The Dow appears to have room to rise further, possibly to 15,000 or even 16,000 points. However, this move should not happen too quickly.

In the lower part of the chart, there is a TCI Long chart for the same period (1935–2013). TCI is a TradingCenter tool that measures the average real return (%) of a market over time. Historically, TCI Long for Dow 30 has ranged from -80% to +80%. Most major bull markets ended when TCI Long reached +40% to +50%. Today, TCI Long for the Dow is about +25%, indicating the Dow is not yet in overbought territory.

Using Simple TCI to Forecast the Dow Bull Market Timeframe

As mentioned earlier, what makes the TCI system unique is its ability to forecast the timing of future price moves. Using a shorter timeframe TCI, we estimate 9 to 11 trading days until the short-term bull rally ends. Adding 9 to 11 trading days to March 22, 2013, brings us to April 3 or April 7, 2013. Below are some Dow Jones and TCI data:

□ By Giorgos Protonotarios

for Trading Center (2013)

Forecasting Dow Jones Industrial using TCI

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