Dow Jones, SP500 Telling Different Stories
Over the past few months I have been developing a number of tools including Potential Target Prices, Negative / Positive Ratios (NP Ratios) and Positive / Negative Ratios (PN Ratios) to help determine the price direction for currencies, commodities, indices and more.
One of the more puzzling things recently has been that these indicators tell seemingly different stories for the Dow Jones and the SP500.
For example, the Potential Target Price (PTP) for the DJIA has climbed from 21291.40 on 4–27–17 to 21785.22 as of yesterday.
On the other hand, the PTP for the S&P500 has fallen from a PTP of 2255.29 on 4–27–17 to 2076.25 as of yesterday.
Likewise, the PN and NP Ratios tell different stories too. On 4–27–17 the PN Ratio for the Dow Jones was a mere 0.064555311. It has since climbed to 0.4467671. It may not seem like much, but it would appear to indicate a positive outlook for the DJIA.
The SP500 has varied a bit more. However, it’s current PN Ratio is 0.750278303. That’s substantially higher than the Dow. It’s beginning to look a bit extreme, even though these extreme ratios haven’t seemed to slow the upward trajectory of the S&P500 much.
One possible explanation may be that the stock market is simply in a very bullish uptrend and, given that, the ratios will remain elevated with much more positive momentum than negative momentum.
The relative weakness in the PN Ratio of the Dow Jones compared to the SP500 also leads me to wonder if the SP500 will peak first before the Dow peaks and then moves lower.
Switching gears, in terms of Murrey Math the Dow Jones needs to be able to get to 22950 if there is to be a phase higher. Otherwise the DJIA could eventually meander lower, possibly to 19237.50.
Similarly, for the SP500, 2500 represents the number to achieve in order to phase higher (Reaching that level doesn’t guarantee it will continue up). If this level cannot be reached, then the S&P500 could drop substantially below the 2000 level.
Bottom Line: The DJIA is substantially weaker than the SP500. Neither has indicated that they are about to phase higher into a substantially stronger bull market. If the DJIA can’t move through 22950 and the SP500 fails to move through 2500 then look for both markets to slip substantially lower than where they stand today, perhaps to 19237.50 and below 2000, respectively.
Disclaimer: Don’t get investment advice from some guy who posted this on Medium.