With the stock market’s positive close on Friday, October 11, the Dow Jones Industrial Average recorded its first higher close in the past four weeks, up 0.91%. Just over a week ago, the Dow Jones Industrial Average had dropped as low as 25,743, but closed Friday at 26,816.
The encouraging news regarding the U.S.-China trade talks has given investors a reason to be more optimistic on the outlook for stock prices. Given last week’s American Association of Individual Investors survey, in which only 20.3% of investors were bullish while 44.0% were bearish, there is clearly room for more positive sentiment.
The bullish% last week was lower than the December 13, 2018 reading of 20.9% (point 1). Some will recall that the stock market reached its low almost two weeks later on December 26, 2018. The bearish% peaked as stocks were making their low the week of December 27th at 50.3% (point 2). A bottoming-out of the bullish% sometimes precedes an upward turn in the market by a few weeks, while bearish% sometimes tops out concurrently (or later) than an upward turn in prices. Keep an eye on investor sentiment, but don’t establish any positions based on sentiment alone.
With Friday’s strong close, there is the potential for the stock market to rally further, if a trade deal is signed. Do any of the most oversold stocks in the Dow Jones Industrial Average look attractive for new purchase?
As part of my regular stock market analytical routine, I look at where the 30 Dow stocks closed the week in relation to their starc bands. When a stock or ETF closes near its upper starc band (starc+), it is considered to be a high-risk buy and therefore overbought. Conversely, a close near the lower starc band (starc-) indicates that