Dow Jones Report & TCI Trading Signal

• Asset: Dow Jones Industrial (DJIA)
• Period: September-October 2015

TCI Forecast: DJIA to complete its uptrend in September (↑) starting a new bear market in early October (↓)

Dow Jones has moved considerably lower since July 2015, from 18.137 points in July, 20th now it is trading at 16.102 points. There are quite a few reasons that could explain why the investor’s sentiment has changed from bullish to bearish so rapidly. Nevertheless, what seems to drive the market at this point isn’t hard fundamental data but a fragile investor’s psychology. The US Equity Markets are rising 7 years in a row now, since 2009, and maybe it’s time for a strong correction that will make valuations cheap again.

Is Dow Jones an expensive market today in terms of earnings? Let’s find out how the P/Es and Dividends (%) of the US Markets are formed after the August slump.

Dow Jones, S&P 500 and Nasdaq Earnings Report

These are the P/Es and Dividend Yields of the major US Equity Indices as concerns the valuations of September, 4th 2015.

P/E RATIO			DIVIDEND YIELD
	Today	One year ago	Today	One year ago
Dow Industrial	15.41	16.18	2.66%	2.20%
Dow Transportation	17.55	20.58	1.45%	1.10%
S&P 500	20.35	18.97	2.18%	1.91%
Nasdaq 100	21.35	23.55	1.29%	1.26%

+Today: September, 4th 2015

Source: WSJ Market Data Group

The P/Es of the US Equity Markets are cheaper than they were one year ago and should not be considered as expensive. Nevertheless, we have seen in the past P/Es 20-25% cheaper than today’s readings. Given the fragile market psychology, the current P/E ratios of the US Markets could become considerably cheaper. The good news for investors is that according to historic market analysis, the numerical relationship between stock market valuations and P/Es returns always in the level of historic averages. Therefore if the earnings of US companies remain strong in the long-run the prices of US stocks will become bullish again after a few months.

The Economic Turmoil in China

China is rapidly transforming itself into a Western-Type economy by shifting from manufacturing to services. This transformation can’t come without a cost. As the Chinese manufacturing data is dropping the impact on the Chinese stock-market is purely negative. That situation reverberated in every emerging equity market in the world and damaged furthermore both investor’s sentiment and the price of Crude Oil. Nevertheless, the Chinese government is more than willing to stimulate the economy and the stock market. According to Reuters, Chinese officials stated on Monday that personal income tax on dividends for shareholders will be removed for those who hold their stocks for more than a year. Maybe the worst for China isn’t over yet but in any case, the resources of this Asian giant are so great that any financial or other economic crisis will not last more than 6-8 months.

Dow Jones Technical Analysis and TCI Readings

As you may see in the chart below Dow Jones Industrial has performed amazingly for the past five years. After the ‘bloody’ August Dow Jones now trades considerably lower than its 210-days SMA (Simple Moving Average). In the upper chart the Dow Jones Industrial (DJIA) daily line chart and in the lower chart the Trading Center Indicator (TCI) on Dow Jones.

TCI on Dow Jones

In the 25th of August 2015, TCI on Dow Jones Industrial indicated -15.69% (check TCI table below) which is a considerably low reading for a major Equity Index such is DJIA. As you can see in the Dow Chart above, reading -15.69% is the second lowest reading of the past five years. The lowest TCI reading of the past five years occurred in the 8th of August 2011, when TCI indicated -17.31%. In the case of 2011 Dow reacted from 10.810 points in August to 12.303 points in late October 2011.

In the case of 2015, TCI suggests that Dow Jones could have 2-3 positive weeks in order to complete its current correctional rally.

Here are TCI Indications regarding Dow Jones Industrial for September-October 2015 (press slider below).

 

Dow Jones Report Last Words

In overall Dow Jones Industrial is expected to react positively from its current levels of 16.100 points and maybe to form a short-term uptrend but be aware that the next few months will probably prove tough for the global equity markets and I suggest keeping cash 50% of your total portfolio value. Keeping cash today means being able tomorrow to exploit good investing opportunities.

 

■ Dow Jones Report (Dow Jones Industrial 2015)

TradingCenter (2015)

George M. Protonotarios, Financial Analyst, » George at Linkedin