TRADING CENTER INDICATOR (TCI): TECHNICAL ANALYSIS ON DOW JONES INDUSTRIAL

Dow Jones Industrial closed on Friday the 16^th of November at 12,588.31 points. The downtrend which started one month ago still continues. Dow was about 13,661 points in the middle of October 2012, so the drop since then is more than 1,000 points, so far. In order to estimate the duration of that downtrend market we are implementing the TCI Indicator on Dow Jones Industrial and here are some results.

TCI on Dow at a Glance: 

• Dow Price: 12,588.31
• Short-Trend: ↓
• Mid-Trend: Possible Rebound, ↑
• Possible Turnaround Dates: 20th of November / 30th of November

 

TCI Indicator on Dow Jones

In the table below we may see some recent daily statistics concerning the Dow Industrial, and at the last column we may find the daily calculated price of TCI indicator. As we may easily observe, Dow Jones trade inside a clear downtrend channel. TCI indicator is found today at about -11.02 {based on the closing of Dow at 12,588 points}. Historically that level of TCI has given traders good returns of 5-10%.

 

Turning TCI forward

If we turn TCI calculations forward we may understand that possibly the downtrend of Dow isn’t over yet. Two important dates are indicated:

12. A) The 20th of November 2012, (TCI= -12.06)

13. B) The 30th of November 2012, (TCI= -11.37)

During those particular dates the downtrend will possibly make a peak and afterward, a correcting upward movement will begin.

What Price Pattern should we expect?

The Downtrend is expected to follow two phases:

1) Downtrend peak, point (A), which will be followed by a weak uptrend correction of +2 / +4% lasting just a couple of days.

2) The second phase, the Dow after a couple of days of good news (A) starts to drop again until the point (B), on the 30^th of November. After that point, we should expect a strong rebound that will last for weeks and possibly to be transformed into a Christmas Rally.

How strong Rebound can we expect

It depends on the bottom that we will see during the next weeks. Let’s see some possible bottoms here:

1) Optimistic scenario, based on unexpected good news, the Dow bottoms at 12,502 points

2) Basic scenario, the Dow bottoms at 12,101 points

3) Worst scenario, based on unexpected bad news, the Dow bottoms at about 11,500 points.

If we use TCI to predict the bottom of the downtrend, we may conclude that the minimum price of TCI that we should expect is about -20. Now, if we consider that we are now at about -12, we should expect a maximum further drop of about 8. That means a Dow 8% percentage drop / a further drop of about 1,000 in points. But of course, this is according to the worst scenario. The basic scenario concerns a drop of about 300-400 points.

TCI Chart on Dow Industrial 2007-2012

In the following chart, we may observe the TCI Indicator fluctuations (as calculated on a daily basis) for the period starting the 16th of November 2007, and ending the 16th of November 2012.

 

Final Conclusion:

Traditionally, a Christmas party takes place every year. That rally usually starts the first week or the second week of December and lasts until the last week of December. During that period usually, the stock-markets are offering good returns of 5-10%. That phenomenon is expecting to happen also in 2012. For those traders, who are willing to enter the market by buying directly stocks or index-based derivatives, we suggest waiting a couple of days, maybe until the end of the month of November 2012.

 

□ G. Protonotarios 

Trading Center, 19th of November (before opening)