DIA/DJIA/YM - is the Dow ready to drop? Or just lagging?

٨ فبراير ٢٠٢١

With the SP500, Nasdaq, and Russell each at all-time highs as of Friday's close, you would think the Dow would be right there with them; but it isn't. On its own, this doesn't necessarily foreshadow lower prices. However, as we add to the story there may be a little more going on with the Dow. Taken from the 2009 low around $65 (not coincidentally, the beginning of QE infinity from the Fed), we see a pretty clear trend channel (best seen on the 1W chart connecting Mar 09 low to Oct 2011 low, Aug 2015 lows, and Jan 2018 highs); within this channel, the Dow has been seemingly stalled out up at the top for around a month (even longer if you consider the belabored move after the blast off in all assets after the election in early Nov 2020). After a sharp move down a week ago (first week of Feb), we saw a strong move back up last week to reverse the selling. What stands out about this move is the lack of volume, the Dow popped last week on half the volume from the selling we witnessed the week before. Now, this certainly points to the ease of movement but it also suggests a lack of conviction. Breaking out to all-time highs on a lack of volume is not bullish; it isn't sustainable. This look is a lot more clear on the 1D chart, especially the narrow range bar printed on Friday. Not only was Friday's range the smallest of last week's move but it was also on the least amount of volume. Equally important, the Dow tried higher price and again failed to register a break and hold of the highs from 1/7 and 1/21 and closed near the lows of the day.

All this being said, given the strength in seemingly every asset class amongst the backdrop of easy money and 0% interest rates (or negative rates), it is damn hard to short the Dow (or anything). But, there is definitely some weakness here that will undoubtedly show itself in the coming weeks. Looking for continued weakness here before establishing a position but its on the radar.