DJI-The best chart to gauge US company strength
Many traders often overlook the Dow. IMO it is perhaps one of the most important charts to be following, especially on a yearly basis. It is "the index" used to gauge the overall performance of the U.S. stock market. So as the year comes to an end I've started to analyze yearly charts and found this simplistic analysis of the Dow to be helpful so thought I'd share my thinking.
I wanted to approach this chart with a long term "time in/time out" approach. At the bottom of this chart is the "Relative Strength Index" (the most basic one within Trading View). In simplistic terms, RSI tracks momentum strength. At year end CLOSE, if the purple line is above the black line long term traders should be "in" the market and if the purple line is below the black line traders should be "out" of the market. If you took that simple approach you avoid turbulent periods within the US stock market. The green vertical line is the year you would enter the US market and the red vertical line is the year you would exit the US market, always at year end. I have also included the gains that would have been realized during the time "in" the market. US traders would then be in cash during the "out" period earning whatever yield cash would be earning at those times.
Although the year end has not "closed" yet, the RSI is stating on Friday, Dec 8th that long term traders should continue to be "in" the US market. I will update this post at years end.
And yes I can see that the purple & black lines are "close" and yes I understand the macro picture which is why I can see how people are somewhat perplexed by this market HOWEVER following price action is most important.
As I write this post the Dow is in a very overbought condition on the daily timeframe so please note that this post is only meant for those looking for a long term perspective.
In 2023 I began a more "simplistic" approach to charting which I believe to be more useful visually; along with a "always zoom out" approach. A sort of: See the forest through the trees and "KISS" (Keep it Simple Stupid) approach. I hope more traders follow this approach to charting...it makes "seeing" the charts so much easier. (I have also generally stopped using red/green candlestick type charts however this chart just looked visually better using them...sigh)
Hope you find this chart as helpful as I did.
I wanted to approach this chart with a long term "time in/time out" approach. At the bottom of this chart is the "Relative Strength Index" (the most basic one within Trading View). In simplistic terms, RSI tracks momentum strength. At year end CLOSE, if the purple line is above the black line long term traders should be "in" the market and if the purple line is below the black line traders should be "out" of the market. If you took that simple approach you avoid turbulent periods within the US stock market. The green vertical line is the year you would enter the US market and the red vertical line is the year you would exit the US market, always at year end. I have also included the gains that would have been realized during the time "in" the market. US traders would then be in cash during the "out" period earning whatever yield cash would be earning at those times.
Although the year end has not "closed" yet, the RSI is stating on Friday, Dec 8th that long term traders should continue to be "in" the US market. I will update this post at years end.
And yes I can see that the purple & black lines are "close" and yes I understand the macro picture which is why I can see how people are somewhat perplexed by this market HOWEVER following price action is most important.
As I write this post the Dow is in a very overbought condition on the daily timeframe so please note that this post is only meant for those looking for a long term perspective.
In 2023 I began a more "simplistic" approach to charting which I believe to be more useful visually; along with a "always zoom out" approach. A sort of: See the forest through the trees and "KISS" (Keep it Simple Stupid) approach. I hope more traders follow this approach to charting...it makes "seeing" the charts so much easier. (I have also generally stopped using red/green candlestick type charts however this chart just looked visually better using them...sigh)
Hope you find this chart as helpful as I did.
Comment:
Below chart compares the median house price in relation to "time in vs. time out" in the US market. Just wanted to include this chart for people to ponder.
Comment:
WOW...a close above the previous ATH (red dotted line)..what an accomplishment today! At this point I am on high alert for a possible breakout failure...we need to watch how price action trades around this previous ATH. Something really, really bullish will just go HOWEVER I would not be surprised if we linger above until year's end. (Personally I think the volatility of this upward movement since Nov will die down the rest of this year only to surprise in January...only time will tell but just my two cents). There are quite a number of open gaps below and the DJI is not known for leaving many open...just saying.
Comment:
Japan's ATH should be on every trader's chart...we are about 4% away from hitting it at 38,957.44. Also notated on this chart are open gaps...which are rare for DJI...prior to 2016 there only exist two on the daily.
Comment:
I forgot to update this posts once 2023 year end closed...as you can see on the below chart the purple line stayed ABOVE the black line which means very long term traders will remain "in" the market.