Last week changed some minds.
Folks who previously considered the Dow a useless index were now searching for reasons to like it. Yes, the Dow is the leader now. It has eked out a higher high than August, something the S&P 500 has not managed to do yet. The Russell 2000 and the S&P are approximately 7% under their August high and Nasdaq is closer to 15% below its summer high.
In fact, the S&P and the Dow are the only indexes to take out their early November highs thus far. The Russell 2000 and Nasdaq are still below their highs a few weeks ago. So too are the Transports below the high two weeks ago. So is the Bank Index. So is the PHLX Semiconductor Sector index.
It's those Dow type stocks that have moved over their highs of a few weeks ago: Industrials, Healthcare and Staples. Oh and the Utes. The funniest part of all of this is that there was a time not long ago that folks stated in no uncertain terms, until growth stocks led again they would not be bullish. Yet here we are. Growth stocks are not leading and folks are slowly turning a wee bit more positive.
You can see the more positive bent in the Investors Intelligence bulls which are now at 41.7%, closing in on the August peak reading of 45%. The bears are still a fraction over 30%, although that might change this week.
But back to the Dow. Currently, 96% of the Dow stocks are over their 50-day moving average line. The last time this metric stretched this high was in early June 2020 when it tagged 100%.
Let's zoom in on that period of time because we see that the Dow Jones Industrial Average had a nice gap up that held for four days. And then left an island overhead as it corrected - to the tune of 9% - in a hurry. It wasn't dire. It wasn't overall bearish but it surely took the wind out of the sails and gave us some volatility. It shook out the weak holders.
Notice that the Dollar Index has been hovering in that 106 area, the spot that I had calculated a measured target when I said I thought it was time for the buck to break the upside fever. For now I'd say it is more likely to find itself in a trading range of around 104-110.
Notice too that the DJIA made its low in late September, as the buck was making its high. The mid October retest of the DJIA's low had a lower high in the Dollar Index. So the DJIA has been moving up while the dollar has been moving down. If the dollar stabilizes or even rallies, perhaps that is another reason for the Dow to correct.
I still think we should get a bout of volatility in early December, and the Dow is what looks most vulnerable to me.
