Today’s retreat triggered the second DJIA Down Friday/Down Monday of 2021. The combination of a DJIA Down Friday* followed by a Down Monday** has been a rather consistently ominous warning, but they have also occurred at significant market inflection points (tops and bottoms). The last occurrence was in January. During that decline, DJIA quickly shed 3.16% from Monday’s close (1/25/21) through Friday’s close (1/29/2021) before quickly recovering its losses during the first week of February.
Since January 1, 2000 through todays close there have been 221 DJIA Down Friday/Down Mondays (DF/DM) including todays. From DJIA’s closing high within the next 7 calendar days to its closing low in the following 90 calendar days, DJIA has declined 212 times with an average loss of 7.21%. Declines following the DF/DM were greater in bear market years and milder in bull market years (see page 76 of Stock Trader’s Almanac 2021). The eight times when DJIA did not decline within 90 calendar days after were following DF/DMs on October 7, 2002; May 19, 2003; November 17, 2003; February 3, 2014; October 13, 2014; October 31, 2016; September 25, 2017 and October 9, 2017.
When DJIA’s close on Monday of the DF/DM is used as the starting point of the subsequent decline (a lower price), DJIA has declined an average of 5.73% over the next 90 calendar days, but there were 38 times when no further decline occurred. In the chart above, the 30 trading days before and 60 trading days after a DJIA DF/DM have been plotted alongside the 38 times there was no lower low after Monday.
Based upon the above chart, if DJIA recovers its recent losses within about 4-7 trading days, then the DF/DM that just occurred may have been the majority of the decline. However, if DJIA is at about the same level or lower than now after this window, additional losses are more likely over the next 90 calendar days.
*Friday or the last trading day of the week. **Monday or the first trading day of the next week.