Trading Nation

Is the Dow’s underperformance a big opportunity?

Catch-up for the Dow?

The Dow Jones industrial average is down more than 2 percent in one week, dragging more than 1 percent behind the S&P 500. The Dow has been pulled down by disappointing earnings from United Technologies, Caterpillar and 3M, which together moved the index down 154 points. But according to one technician, it won't be long until there's a rebound.

"I still think the bull market in equities is alive, so there will be a catch-up trade toward the end of this year," Craig Johnson of Piper Jaffray said Thursday on CNBC's "Trading Nation." "The S&P and Dow are going to move higher right into year-end."

According to Johnson's chart, the Dow has mainly moved in a sideways range since the beginning of the year.

"I feel like right now we are in a consolidation pattern for larger-cap stocks," he said. "Until we break the uptrend support line that has been in there for several months now, we're still there just consolidating."

But Larry McDonald of Société Générale sees trouble ahead.

McDonald said the Dow has crossed below the 200-day moving average 10 times since June 29, which hasn't happened since 2011. That time, it led to a sharp drop in the S&P, he said.

"It's a warning sign that we're crossing the 200-day that many times," McDonald said Thursday, also on "Trading Nation."

He attributes part of the Dow's drop to a strengthening dollar.

"The dollar's a wrecking ball. The U.S. is a big exporter and the dollar is hurting our companies."

This week's drop so far brought the Dow down to 0.50 percent for the year. The S&P is up more than 2 percent year to date.

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