Why Can't the Dow Join the Party?

The Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite all made closing lows on November 20, 2008, which constitute, at least thus far, bottoms for the market decline from October 9, 2007. Since then, both the S&P and the NASDAQ have officially started new primary bull markets on December 16, with closing highs more than 20% up from the November 20 close. The Dow has yet to reach that mark. On Friday, January 2, 2009 the Dow traded briefly above the level (9063) that would, if it were to close at or above that level, mark a 20% or more rise from the bottom. But the Dow closed at 9034.69, up 19.6% from the November 20 close.

Why can’t the Dow join the party? The S&P 500 closed Friday up 21.4% and the NASDAQ closed up 23.8% from the bottom, but the Dow still hasn’t made it, nearly three weeks after the other two. Maybe Cinderella will get to dance on Monday.

What might get in the way of the Dow finally getting a primary bull dance ticket? Well, one worry would be that the three day rally we just had might find headwinds when traders less in the holiday spirit return to Wall Street. Volume has been light, as customary for the holiday season. Before the Christmas break, average NYSE daily volume was 5.86 billion shares (Dec. 15 – 19). The five days from Dec. 22 – 29 saw average volume of 3.14 billion. The three day rally (Dec. 30 – Jan. 2) had average daily volume of 3.93 million. When we go back to an expected 50% higher volume on Monday the fifth, will the returning traders be looking to continue the twelve days of Christmas or will they be Grinches?

The three day rally showed healthy breadth. Friday advancing volume was more than 5 to 1 over declining volume across all markets. Advancing issues outnumbered decliners by better than 4 to 1 on the NYSE and nearly 3 to 1 on the NASDAQ. On the negative side, the number of new lows on the NYSE and AMEX, combined, was nearly 4 times greater than the number of new highs. For the NASDAQ the ratio was just under 2 to 1. These are not very strong numbers for the amount of time (six weeks) since the recent bottom.

Monday will be interesting. If the day sees a continuation of the three day rally, it could be a good week. If Monday closes down, especially if there is a strong open, the week could be quite unpleasant.

Comments

[Tradememe:]

Please, lets not draw too much of a conclusion out of the Monday trading session. It would take several days of heavy volume in order to spot a trend in the current environment.

Jan 04 12:27 PM

[dcb:]

I think Monday will be telling

Jan 04 01:02 PM

[dcb:]

I think we'll see slow movements, and the pattern will continue. I expect a new high monday followed by selling and things ill drop but get support at about 850, then make another run up fall back to 860, etc. slow movement upwards with most of the quick gains have already happened, you will be able to trade this patern.

Jan 04 02:04 PM

[jrs87sch:]

We are still in a bad economy and a bear market. Don't get too optimistic when there is a bear market rally; it is soon followed by a sharp drop in prices.

With the recession hanging around for at least another 6 months, there is bound to be at least one more big low to be hit. It doesn't necessarily need to be lower than the past low in November '08, but we are going to get hit pretty badly at least one more time.

I am optimistic, however, for Q4 2009 and the beginning of 2010. We are going to see a whole new force driving the economy.

Jan 05 09:25 AM

[CM in MA:]

The DJIA is like comfort food. It is familiar and reminds of long ago times when the world seemed a simpler place. It is also a quaint anachronism. As a narrow, price-weighted index it is far more flawed than the broader, market-cap weighted S&P 500 and Nasdaq Composite. Seems to me the DJIA gets so much play in the media simply because it is a large number. The point moves in the Dow sound more dramatic than the point moves in the others. For the most part, the DJIA can be safely ignored by investors.

Jan 05 10:42 AM

[Moon Kil Woong:]

I would surmise the Dow may get a little spike but will be back in the 8,000-9,000 trading range later. Hopes for government intervention gives very short respite to a market with long term negative implications. For every bailout, if it doesn't continue or the government sells its stake the reversal effects of its actions are always worse than it's initial action.

If the 1970's auto industry wasn't bailed out in the 70's maybe the auto industry today would have been more aloof and responsive to market forces today. Even without the downturn the auto industry got a $25 billion package from taxpayers to modernize. Obviously the management thinks it's the public's duty to pay for technological advancements than thinking ahead and doing it on their own. The auto industry's problems have been persistent and endemic for decades.

The recession only highlighted the fact they have been sucking the pork spigot for ages.

Jan 05 10:55 AM

[Steven Hansen:]

well John, the markets closed a little down. the jury is still out as always. even i was thinking monday would be an up day,

Jan 05 06:32 PM

[{5U}:]

The government wants to jaw bone all throughout January so Obama has the wind to his back coming into inauguration

Isn't it a little strange the mass media and the market has shrugged off what is going in Gaza?

The Obama-media seemed to care more about his daughters first day of skool than violence in the middle east hitting full throttle.

Guess that is good for USO. Russia must be smiling.

Jan 05 09:14 PM

[John Lounsbury:]

The Hand - - -

Monday did not fit any of the likely scenarios I had imagined. Hung jury.

Jan 06 12:28 AM