I’m a retired, half-baked economist and no technical analyst but the following chart and associated indicators tell me that there is a significant loss of momentum and divergence since the beginning of May.

A five year chart (not attached) is not encouraging.

Your views would be appreciated.

 

Eoin Treacy's view

Thank you for your observations and your self-deprecatory perspective will stand you in good stead when participating in the markets. When assessing market potential it is generally better to start with a long-term chart before zeroing in on more recent activity. This lends perspective and helps to fend off myopia which is a particular threat with large positions relative to one’s capital. 


The Dow Jones Industrials Average has been trending higher since 2009 in a reasonably consistent manner but the move has been punctuated by a number of somewhat larger reactions, particularly in 2010 and 2011. I agree it has lost momentum this year and two lower highs are evident since May. The Index has also posted two lower lows, bounced from the most recent one this week and is now trading back above the 200-day MA. A sustained move above 18,250 will be required to check the short-term downward bias and to confirm the more than seven=month range is likely to be resolved to the upside.

If we assess the 5-year trend we can conclude that it has not broken the primary uptrend but in the event that it fails to surmount the most recent lower high near 18,135 and subsequently falls below last Friday’s low, we can conclude that a more serious loss of momentum is unfolding and the 200-day MA will become a more important touchstone because it would present a natural area of resistance during rallies. A sustained move back above it would be required to signal a return to demand dominance in that scenario.   

10-year Treasury yields have been ranging mostly above 1.6% since 2011 and rallied from early this year to break a yearlong progression of lower rally highs. The yield has been ranging above 2.2% since early June in what continues to look like a consolidation of earlier gains. A sustained move below the trend mean would be required to question that view. 

In the event that yields do fall through 2.2% that would not question the medium-term base formation hypothesis but it would suggest greater volatility in Treasury markets.

Since you occasionally look at Chart I think you might enjoy The Chart Seminar.