Ancient Charts of the Dow Jones

I upgraded my Stockcharts.com membership to the highest possible level of "Pro" this weekend.   The primary reason for this was to gain access to a plethora of historical market data going back over 100 years.

For example, I am now able to analyze price data for the Dow Jones Industrial Average going back to the year 1901.  Obviously, this is a lot of data and it will take me a while to unpack it all, but for starters here is 112 years of data compressed into a single chart:

The chart above uses yearly candles (I've never seen a chart with yearly candles before), and goes back to the year 1901.

My interpretation of the chart is bullish.  From my perspective, the Dow is an uptrend, rising 5 years in a row, within the context of breaking out of a decade long consolidation area.  



Of course, it is possible to zoom in and examine any given year in particular.   The chart below is a daily chart just covering one year way back in 1901:

One theory I have is that trend following not only works now, but has worked for decades and perhaps even centuries.  For example, using a simple 20 and 50 day moving average (the same moving averages I use for all of my charts), we can see a profitable buy and sell signal generated.

How would trend followers have done during the roaring '20's or the Great Depression?   How did buy and hold do during the forgotten market performance of the first half of the century?  

Trending Stocks Making New All Time Highs

Here are two stocks my scans isolated this week:

Although I have no idea what product or service the company above provides, they must be doing something right as the stock is currently at a record all time high price.

Technically, the gap up through the consolidation area is a major plus.   I will be purchasing this stock on Monday to replace the my current position of ITB, the homebuilders ETF, which showed some serious weakness recently.

My job as a trend following trader is to systematically eliminate the weakest stocks in my portfolio and replace them with stronger candidates.

Next:

The stock above would look very promising if it could breakout of its consolidation area into new record price territory.

Video on How Professional Trend Traders Use Position Sizing

I've put together a YouTube video that discusses the importance of position sizing and also discusses a spreadsheet that I developed that makes this important task easier.  Enjoy:

Breakout Stocks of the Week

As usual, I ran my stock scans this weekend and here are the best charts found:

Next:

That's all for today.   I'm working on a special holiday post for tomorrow, so you may want to check that out.

Breakout Stocks of the Week

After running my scans this weekend, here are the top stocks found:

The stock above is currently consolidating above gap support and would look attractive to me if it could break above $8.00 to a new record high price.   Notice, also, that the stock appears to be doing better than most mining stocks.

I like to add at least one low priced mining stock to my portfolio for diversification purposes, since often stocks such as these march to a different tune than the general market.  That is one reason that I purchased the stock below:

The stock above pretty much went straight down after I bought it, but now appears to be forming a healthy consolidation pattern or bull flag.    Alternatively, I may be suffering heavily from confirmation bias.


Next,

The stock above is making a new multi-year high and also appears to be forming a bull flag.  In addition, the monthly chart is also forming a similar pattern:

So, basically what we have is a bull flag on the daily chart forming within the context of a much longer term pattern on the monthly chart.

Bears Upset the Apple Chart

I listened to another episode of Michael Covel's podcast this week that talked entirely about Apple stock.   As usual, Covel did not specifically discuss how to trade Apple, but I found myself agreeing with everything he said nonetheless.   The core message of the podcast was that there are an infinite number of analysts, news articles, opinions, forecasts, fundamentals, etc..., but all of this noise can be eliminated and a clear, objective decision can be made by focusing instead solely on the price action:

The chart above shows Apple's short term trend ending on October 19th.   This means that had I owed it, I would have sold it at that point.  More recently, the long term trend also turned down, which indicates that Apple could be shorted, but only if the general market trend was also down.

So, the bottom line is that I would simply not touch this stock at this time, neither long nor short.


Meanwhile, another tech stock that is sending the opposite signal is Google.   This stock hit a new all time high on Friday and also has, in my opinion, a very constructive long term pattern:

The chart above is a monthly chart and goes all the way back to Google's IPO.   What I find constructive is the stock's multi-year consolidation pattern and breakout.