What the Eerily Quiet Dow Could Mean for Stocks

The Dow Jones Industrial Average (DJIA) has been quieter than usual, sending up a signal not seen since 2016

Andrea Kramer
May 9, 2017 at 10:13 AM
facebook twitter linkedin


Last week, the Dow Jones Industrial Average (DJIA) explored a range of just 159 points, or 0.8% (range/week close) -- the narrowest channel of 2017. Excluding holiday-shortened weeks, the blue-chip barometer has traded in a weekly range of 1% or less just 12 times since 2010, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Below, we take a look at what the eerily quiet Dow could mean for stocks in the short term.

Dow Signals Abound Since Election

The last time the Dow explored a range this narrow (again, excluding four-day weeks) was the typically quiet week before Christmas. In fact, there were three of these "signals" in the fourth quarter of 2016, when the stock market was in the throes of the "Trump rally." What's more, five of the last 12 signals happened in 2016, with not a single signal in 2011, and just one signal each in 2015, 2013, and 2012.

Dow narrow trading range weeks

A Quiet Churn Higher Ahead?

While the Dow experienced some short-term turbulence after the last signal, quieter-than-usual weeks have boded well for the index, historically. On average, the Dow gained 0.42% one week after these signals, and 1.28% three weeks after. That's more than double the DJIA's anytime one- and three-week returns of 0.20% and 0.60%, respectively, going back to 2010. Plus, the Dow was in the black two-thirds of the time one and three weeks after a signal. Looking one month out, the Dow averaged a stronger-than-usual gain of 1.06%, but was higher just 50% of the time. 

You'll also notice that standard deviation is smaller than usual after a signal. This points to more lower-than-normal volatility ahead, echoing a recent signal sent up by the CBOE Volatility Index (VIX), which just marked its lowest close since 1993.

Dow after quiet trading weeks


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter