Bearish Signal from the Dow Theory?
I spoke with Chuck Carlson, CEO and Publisher of the “Dow Theory Forecasts,” last week about the pending bearish signal from the Dow Theory. I’ll have a video of our interview available tomorrow on our YouTube channel, but here’s the bottom line...
Write this down and keep it on your desk:
If the Dow Jones Industrial Average closes below its April 15 lows of 37,735, we will have moved into a new bearish trend according to the Dow Theory.
Let me say that another way: we’re less than two percent from moving into a new bearish trend according to the Dow Theory.
The Dow Theory has been around since 1946 and has called almost every bull and bear market trend change, so this is something to watch over the next few weeks.
Investor Sentiment is Shifting
The CBOE Volatility Index (VIX), A.K.A. The VIX or Fear Gauge, is starting to wake up and move higher.
Last week, the Fear Gauge tapped a reading of 12, which is considered very low for the VIX. Low readings like this indicate that investors and traders are complacent. That’s never a good thing.
We always want to see a little fear in the market.
The last time we saw a reading of 12 from the VIX was just ahead of that short pullback in May.
Stocks dropped 2% just after NVIDIA (NVDA)’s earnings before finding support at the S&P 500’s 20-day moving average and taking off to new highs.
Things are a little different this week, though.
The Russell 2000 is already trading below its critical $200 level, and Bitcoin (BTC) is retreating from its high and getting ready to break below $65,000. Those are two things that tell us that investors are quickly becoming risk-averse, not good for stocks this week.
This Week’s Earnings Calendar
The earnings season has all but ended, but a few retail and consumer companies are set to release their earnings results during the holiday-shortened week.
Almost all the companies in the table below are trading in short-term bearish trends, except for the housing companies. KB Homes (KBH) and Lennar (LEN) will be among the most widely watched this week.
Lennar reports their results after the close on Monday.
Revenue for the homebuilder picked up last quarter, despite the continued high-interest-rate environment putting pressure on new home sales.
The company has been offering initiatives to homeowners that allow them to finance their houses at lower rates as if it were a kitchen or bathroom upgrade.
Homeowners have reacted to the offers, which has kept the revenue ahead of expectations.
Watch for comments on housing demand in their quarterly conference call this afternoon.
Kroger Looks to Catch Up with Walmart
Bulls may want to check in on Kroger (KR) shares ahead of the company’s earnings call on June 20 before the market opens. Kroger has been pushing prices lower to catch up with “inflation fighter” Walmart (WMT).
Last quarter, the company upgraded their outlook for the upcoming earnings report by raising their earnings per share guidance.
Last quarter, Kroger beat on the top and bottom lines of their earnings results. Since then, the stock has fallen as investors fear the slowdown in consumer spending is starting to hit more and more retailers.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.