I’ll get to those in a little bit. First I need to take a look at where we’re trading on each of those indicators.
Let’s examine the five categories in which we’re trading each week.
Divergence – The level of change from the previous week’s low in the Dow Jones industrial Average, which moves up or down by +200 points or more, and the S&P 500.
On the week in question, the Dow dropped 1,070 points, or 2.3% or 7.4% in the past year, with the S&P 500, an index of U.S. stocks, also moving downward by 1.2%. The divergence has now widened a little over 20% since the start of 2010. It’s the most volatile component of the index.
The Dow fell by 6% over the same period in 2010 because of declines over the last 3 years due to the Federal Reserve’s quantitative easing program (QE) of lowering interest rates to 0.75% from the historic historical average of 1.00%, while injecting $85 billion into the U.S. economy and reducing corporate debt.
In January 2015, the Dow fell 1713 points or 4% year over year. In October 2014, the Dow dropped 1815 points, or 4.4%, on the last decline after a series of strong numbers in the third quarter. Since 2010, the worst run in U.S. economic history. There’s reason to believe the market is close to bottom. The Fed has already been raising rates two extra times in 2014 and is about to do a third, so it’s likely to follow through with the second hike it’s done since 2010 in the first quarter of 2015.
Volume – The average daily volume of stocks traded between the two indexes.
It’s not the most volatile component of the index, but the difference between the two is what separates the market from a volatile market. A volatile market is one that moves up or down from week to week, whereas the market moves more frequently. Volatility is measured using VIX, or the risk-onset index, based on the daily volatility of the two indexes.
Daily Price Move – The weekly change in the Dow Jones U.S. Industrial Average, based on
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