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This could be the Dow’s secret indicator

Talking Numbers

There is an indicator that could help predict where the Dow Jones Industrial Average is headed next, says one well-respected analyst

There is an indicator that could help predict where the Dow Jones Industrial Average is headed next, says one well-respected analyst.

John Kosar, president and market technician at Asbury Research, says the world's largest retailer, Wal-Mart, is signaling the Dow's next direction.

Wal-Mart makes up 3.17% of the Dow; until recent changes, it was 3.75%. It may be a small part of that index, but it's a key player in the economy. Wal-Mart is the world's largest retailer and employer, as well as the planet's second largest corporation.

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The relationship between the Dow and Wal-Mart has been particularly strong since the start of this decade. Kosar has calculated a correlation coefficient of 0.88 between the Dow and Wal-Mart since the beginning of 2010. From the beginning of 2012, it has been 0.71 and since the start of this year, it's 0.80. The closer a correlation coefficient is to 1.0, the stronger the relationship between the two variables being measured.

But, here's where it gets interesting: The Dow is currently sitting near its 200-day moving average. However, Wal-Mart decisively broke below its 200-day moving average at the end of last month.

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Will Wal-Mart continue to head down or do the charts show some support? And what can we expect from the Dow given Wal-Mart's charts?

Watch the interview with John Kosar to see his analysis of the charts for both Wal-Mart and the Dow and hear what he thinks is next for both.

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