State of Dow Jones - Calendar Week 42 2021

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Hi folks! Welcome to another part of the blog post series State of Dow Jones for Calendar Week 42 2021 Part three already. This week has been incredible for those that invested into the Dow Jones. But how healthy is the current price development and what's the outlook?   Technical Chart for Dow Jones Every "State of Dow Jones" blog post should start with the technical chart, so here we go (created on tradingview.com):   The Dow Jones managed to trade above its SMA 20 and also overcame the turquoise trendline / flag which happened to be at the 35 000 resistance level, which became a support shortly afterwards. The index only knew one direction during this week - upwards. The current price movement stopped a few points above the old all-time high and within the upper Envelope band. On the daily time frame, the index now looks slightly overheated. For now, the old all-time high around 35 631 holds, but it wouldn't be a big surprise if there was a small pull-back before t

State of DAX - Calendar Week 38

State of DAX - Calender Week 38

Vacation is over and another "State of DAX" report is due.

During the past two weeks, we've seen a dip, realized that Evergrande in China is no longer able to pay out the investors and we still deal with the "usual" problems, such as the Corona pandemic. In addition, the amount of DAX components grew from 30 to 40. Lots of things are moving the DAX and it will be interesting to look at the state of the German stock index.

Technical Chart for DAX

DAX technical chart created at tradingview.com

The DAX fell through the lower Envelope band and gave a clear oversold signal on the short-term time window. At the moment, the price is again between the Envelope bands but failed to reconquer the SMA 20. As long as the price is between the SMA 20 and the lower Envelope band, I speak of a bearish or weak phase on the short-term time window.

At least the DAX managed to trade above 15 500 again, an important area of support and resistance. However, as long as the index trades below 15 800, I consider the DAX as weakened. It could be that we see another falling high, or "lower high" and therefore see an even sharper downside trend than the one we're already seeing. 

After all, it looks like the consolidation continues for now when only looking at the technical chart.


Market Breadth Data for DAX

Typical Market Breadth Indicators for DAX

 
On our dashboard for market breadth data, we see that the Advance Decline Line for DAX follows the index and its movement. No notable divergences here.

The data for Advanced vs. Declined broke out from the existing pattern. I am not sure yet if this means we will see more volatility or if this actually signals the end of the consolidation. Let's wait for the next trading days when we have more data.

The McClellan Oscillator for the DAX managed to advance two days in a row and even is above the zero line again. This is actually a bullish signal, but I am not sure if we should threat it this way since we now have 40 DAX members which will give other data in the future.
 
The McClellan Summation index formed a bottom for now, but did not advance on the last trading day. This indicator needs to rise further before it can provide a bullish signal.

Until here (Advance Decline Line, McClellan indicators) we see signals that are neutral - bullish. 
 
Since we also have the RSI indicator on our market breadth chart, we should look at it as well. The RSI declined sharply and touched the oversold zone. Also, during the recovery of the last trading days, it bounced away from the line "in the middle", which is drawn at the RSI value of 50. Usual, during an healthy uptrend, the RSI should stay above the value of 50. Some use the break below 50 as a selling signal. 
The fact that the DAX did not manage to have an RSI value => 50 again is slightly bearish.

Additional Market Breadth Indicator for DAX


 DAX market breadth image provided by https://www.advance-decline.net


We still need to talk about the percentage of DAX members trading above their SMA 50, SMA 100 and SMA 200.
 
In my last "State of DAX" report for calendar week 36, I stated that my primary data provider for this type of market breadth data stopped providing the relevant data. At first I thought this was due to a technical issue, but it looks like that this provider will no longer provide data for XETRA equities. This means I had to switch to a secondary data provider and I selected Alpha Vantage for this purpose. Their data seems to differ from the data I've seen from my previous provider, which means that there are small differences between the data being used in old reports and the data I'll be using from now on.
 
This is why I will split the market breadth data into two parts:
  • The typical market breadth data will come from the website (https://www.advance-decline.net/stock-indices/dax/), I will just use the usual dashboard which is created automatically after every trading day. This data comes from my main data provider and did not change.
  • For the DAX components trading above their SMAs, I will use Alpha Vantage as the data provider, which means that all "percentage of DAX members above their SMA" charts, which will be created from now on, will show slightly different values for the past months. But this should not have much effect on our reports

So, let's talk about the percentage of DAX components trading above their SMAs.

The percentage of DAX components trading above their SMA 50 is at 37,5% (was 36,67% two weeks ago).

The percentage of DAX components trading above their SMA 100 is at 45 % (was 40% two weeks ago).

The percentage of DAX components trading above their SMA 200 is at 60% (was 53,33% two weeks ago).

During September, all three numbers declined. Actually, they all have been declining since the top at mid April. 

Those numbers could be interpreted in a way that the DAX has been week for a longer period and I am not sure if we've seen the bottom here. Here is another screenshot which helps visualizing the decline in this data:

DAX market breadth image provided by https://www.advance-decline.net

Summary

Overall, we receive mixed signals.
Market breadth is neutral or slightly bullish, but needs more confirmation before one could speak of the end of the consolidation.
The technical data speaks another language. The signals there are mostly bearish, but not so bad that one should be scared of the next weeks. 
Short-term focused traders should eventually stay on the sideline for now.
Investors with some patience could use this weak phase to time their investment into ETFs or similar instruments.

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