Market Minute: Dow Logs All-Time Highs, But How Strong Is The Trend?

The Dow Jones Industrial Average ($DJI) pushed into fresh all-time highs yesterday, marking a +5.4% rally off the recent lows from Sept. 11 as of yesterday’s close. By many measures, the technical picture looks favorable for continuation of the bullish move. Price is above major moving averages, which are trending upward. Trendlines are holding steady, price keeps making new highs, and momentum indicators like the Relative Strength Index (RSI) are also making new relative highs in tandem with price. Additionally, the RSI is on the verge of crossing above the overbought threshold, which would be another bullish sign. So, everything is great, right? 

Curiously, one indicator gives a somewhat different perspective on the recent price action. Consider the Average Directional Index (ADX), which measures the strength of the current trend. This indicator behaves differently than most others in that a higher reading above 25 suggests a strong trend, regardless of whether the trend is going up or down. Conversely, a reading below 25 is typically regarded as reflecting a weak trend or no discernable trend at all. The $DJI shows an ADX reading of about 16 as of yesterday’s close, which puts this index significantly below the threshold for a strong trend according to this indicator. 

To be clear, this is not a call for alarm or attempting to suggest weakness in the Dow. It simply suggests that perhaps the trend has not solidified to the upside as strongly as it may seem. But there is another important thing to note about the ADX, which is that it recently hit a trough and is starting to trend upward. This is a significant development to watch, as this could be an early sign of a potential strengthening trend.

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