Monday’s market decline triggered the first DJIA Down Friday/Down Monday of 2022. 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 December. The Fed and the arrival of the omicron variant had already stressed the market and market sentiment was already somewhat sour. That last DF/DM of 2021 turned out to be a bullish turn for the market as DJIA quickly recovered its losses and was up 4.03% from Monday’s close (12/20/2021) through yearend and to new all-time closing highs.

Since January 1, 2000, through todays close there have been 227 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 218 times with an average loss of 7.10%. Declines following the DF/DM were greater in bear market years and milder in bull market years (see page 78 of Stock Trader’s Almanac 2022). 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. (The 90-calendar window is still open for December’s DF/DM.)

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 5.60% 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.

As of today’s close, DJIA has reclaimed all of its losses from Monday and last Friday and appears to be on the track of no further declines based upon historical DF/DM’s. If this is indeed the situation then DJIA could quickly return to new highs provided economic data continues to hold up against surging covid cases and the Fed does not get overly aggressive with tightening monetary policy.

*Friday or the last trading day of the week. **Monday or the first trading day of the next week.