Today, Friday the 27th July is when we expect a market turn in the Dow industrials. These turns are calculated from 100+ years of Dow data, using a slightly different method from that used to generate other turns and they aim to pick out the longer-term highs and lows in US stocks. There have been very few of them in the last few months but there will be many more in the months ahead - the next one is due on August 20th. This fits with our long-held view that US equities are stuck in trading ranges that will continue for a long-time to come – an environment that suits ‘trading’ not value-driven ‘buy and hold’ investing. There have been long periods in the past when this has happened – much of the nineteenth century and all of the 1970s, for example.
Other turns due in the next few weeks are:
August 7th - an energy and grain market turn cluster (a cluster means that several different related markets or instruments are due for turns on the same day)
August 17th - a general turn cluster in commodities - precious and base metals, grains, energy and the CRB index
August 20th- a grade 3 (the weakest) equity turn cluster, mostly in the US, with some contribution from Europe. This is also a day when a bond turn is due and the next Dow turn too - see above. There is some spill-over into the next day, Tuesday August 21st
August 25th - a Dow turn. This is on a Saturday and is preceded by a very small (sub grade 3) flurry of US equity turns on Friday 24th– we only mention this because of the Dow element and this turn may pass without any particular event
September 13th/14th - another Dow turn on this Thursday/Friday, together with a grade 3 cluster of equity turns in the US and Europe. This is followed by a similar sized cluster on Monday/Tuesday 17th/18th that probably marks the same event. This equates to a higher grade (probably a grade 2) of turn but it is spread over four days – too many to be useful.
The absence of large-scale turn clusters in the next few months is in contrast with the recent past, during which we have seen many grade 1 and 2 turns, some closely-spaced. This has led to a period of great volatility within a fairly tight trading range – we have had to issue advice to change direction often. Now it seems probably that some longer-running trends will emerge that may enable positions to be kept for longer.
As ever, we don’t know the meaning of a turn until the date is imminent – the prior trend is all-important when determining whether the markets are making a high or a low. In the case of today’s turn it is obvious – Dow futures have already made a new high for the week in European trading hours and this clearly means a high point is being made. Brave traders should sell new highs on turn days or buy new lows. We will try to interpret those inconvenient cases when the turn is indistinct or may come a day early or late.