Dow Jones Industrials Average & April seasonals

<p>As April kicks off the 2nd quarter and US earnings season, stock traders will be reminded of the statistical fact that April has proven to […]</p>

As April kicks off the 2nd quarter and US earnings season, stock traders will be reminded of the statistical fact that April has proven to be the best month for the Dow Jones Industrials Average (DJIA). Most currently, the DJIA finished higher in April in of each of the last eight years, averaging a monthly rise of 3.3%.

Unlike the S&P500, which is trading at new record levels, the DJIA is 30 points way from its 16,588 record close reached on December 31 of last year.

93% of DJIA members are currently trading above their 200-day moving average, which compares to 65%, 85%, 63% and  83% for the NASDAQ, S&P500, FTSE-100 and Dax-30 respectively. The higher participation from DJIA members suggests stronger internals from the index, which argues for the sustainability of the existing rally.

Limits of the 200-week moving average

Trend wise, the DJIA’s weekly chart shows the index is currently at 28% above its 200-week moving average, which is near the highest crossover between the index and the weekly average over the last 9 years. The chart below shows each time the index was 28%-30% above its 200-week moving average, it led to a correction or a crash. The last time the DJIA stood farther away than 30% above its 200-week moving average was in the bubble days of January 2000.  In order for the Dow to remains within in a 30% crossover above its 200-week moving average, the steepness of the average must also be maintained. Interestingly, the 200-WMA has been at its steepest form since the late 1990s.

We noted in previous pieces that the risks of an April correction would emerge due to market worries over the economy’s performance in the face of further tapering ahead.  Earnings season aside, neither the technical momentum nor the price action of the DJIA suggests a sharp decline in April. If anything, 17,200 could well become the next target for end of Q2.

Finally, Dow-theory enthusiasts will see that the Dow Jones Transportation Average has risen by nearly twice as much as the DJIA over the last 12 months. This could well suggest that the main average has some catching up to do as far as pace is concerned, assuming no negative surprises in earnings season.

Dow Jones Industrials Index vs 200 week moving average

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