The first lesson drilled into my head after losing big in early 2009 is that the odds of success in trading equities are increased when the broad indices — S&P 500, Dow and Nasdaq — are moving in the same general direction.
At first glance, all three are testing horizontal support — they’re in sync. They are so much in sync that one strong move by one player in any direction could pull the other two. It’s something to pay attention to because it could happen any day or in the next few weeks before the new year.
Relative Strength
There’s something else worth noting: the 200-day moving average — the other line on the charts. “Technically,” the Dow is just about out of a bear market with its steady pricing almost 25% above the recent 28.635 low. The 200-day line is immediate resistance for the S&P, and the Nasdaq is lagging far below.
So why is the Dow so strong in this bear environment? Is the Energy sector the only one doing the heavy lifting?
The Components Based on Time
Here are the components and their sectors. Currently, the Dow represented by the ETF DIA is down only 6.5% for the year, while Energy is leading the index with a 44.9% year-to-date (YTD) return based off Chevron Corp. (NYSE: CVX).
But check out Merck & Co. Inc. (NYSE: MRK) and the whole Healthcare sector, for that matter. Its holdings are up 4.5%, 42.3%, 9% and 23.9% YTD, for example.
How about McDonald’s Corp. (NYSE: MCD) and The Coca-Cola Co. (NYSE: KO)?
Caterpillar Inc. (NYSE CAT) is up 12%, The Travelers Companies Inc. (NYSE: TRV) is up 19%, tech company International Business Machines Corp. (NYSE: IBM) is up 11% YTD. Those stocks are not in bear markets, but it hasn’t been a straight up year for them either.
The Conclusion
These are just Dow stocks… There are more stocks with 2022 stories.
Trade the strongest stocks to the upside and the weakest stocks to the downside. That works during almost any market condition in any given year.
As we approach Christmas and the end of the year… Watch out, don’t cry, don’t pout, I’m telling you why…
Markets are always moving. Opportunities are always there. You just have to have a way to find them.
I believe you can!
Think and win,
Celeste
