Wall Street gave investors whiplash. The Dow gained 0.4% to 51,983.98 on Monday while the Nasdaq slid 1.1%, Yahoo Finance’s closing summary shows, leaving the Dow up 8.2% this year. That’s a clear rotation from tech into blue chips. With US midterms on 3 November and payrolls due Friday, check our Nasdaq 100 outlook for the tech side. The chart below covers the Dow.
Figure 6: Dow Jones key-level map in blue and silver, built from published closes and round-number levels (illustrative, not a live feed).
What the Chart Shows
The Dow Jones Industrial Average (DJIA) was up slightly from its close on Thursday (October 29) of 52,343 when it ended Monday at 52,984. However, the DJIA had dropped 1.1% on Friday to 51,770 because of losses in technology stocks. The upper limit for the DJIA is currently set by the red dashed line at 52,343. This level represents a near-term ceiling, and it is very close to the mid-June peak of 52,300. In addition, the DJIA has a pivot point of 52,000, which is located within the shaded area that extends below the support level of 51,770. Both the round numbers of 52,500 and 51,000 are potential targets for the DJIA.
Our gold forecast shows how nervous traders are before payrolls.
The Fed and Earnings
The Fed held rates at 3.75% to 4.00% last week by a 10-2 vote, with Governors Cook and Hammack wanting a hike, the Federal Reserve says. Its statement read “Inflation remains elevated.” Markets now price a December hike at around 82%, as we explained when gold defended $4,000 . Higher yields hit growth stocks harder than Dow value names, which explains the rotation.
Tech Wobble, Safe Haven Bid
Friday showed the risk. Intel plunged 28.6%, AMD fell 10.9% and the Nasdaq lost 2.9%, Yahoo Finance reported, yet the Dow dropped far less. October left the Dow up 1.7% while the Nasdaq lost 5.3%. Cheaper oil also helps industrials, a theme in our Brent crude outlook .
A Practical Game Plan
Trading index products is unique. The Dow includes only 30 large companies; therefore, it tends to move as a unit. However, a single large company within the Dow may move the entire index. In addition, the Dow is price weighted, which means that a $100 price change in a high-priced stock will have a greater impact on the index than a similar price change in a low-priced stock. Because the index trades at such high values (e.g., in the thousands), even relatively small percentage changes in value result in significant changes in the absolute number of points. Therefore, make sure you understand your contract size and margin requirements. When planning your trading strategies around upcoming events such as the midterms, Friday’s payrolls report, and Federal Reserve officials speaking, consider reducing your trading positions prior to these events. For long term investors, a pullback to levels around 51,000 would still represent a net gain for the year. Thus, there is little reason to panic. Traders who focus on short-term profits face a much more difficult task. Elections and employment reports often create extreme volatility, and the first hour following a report release is typically extremely chaotic. Many experienced traders choose to simply wait out the first hour of trading, then enter trades based upon the direction that emerges. This is an extremely boring method, and this is generally the objective of utilizing this strategy.
Three Scenarios
Bullish: a close above 52,343 opens 52,500.
Bearish: a close below 51,770 aims for 51,000.
Neutral: 51,770 to 52,343 into payrolls and the midterms.
Short term, the midterm results, Friday’s job report and the Fed’s comments are what will move things.
Longer term, the record zone near 52,300 in June is the ceiling bulls must clear. Will blue chips keep outrunning tech, or does the Fed’s hawkish tilt drag them down too? Plan your trade before the volatility arrives.
Frequently Asked Questions
What is the key Dow Jones resistance?
The near-term top will be at 52,343 (the closing price on October 29) and then the next round number will be at 52,500.
Where is Dow Jones support?
The next level of support is Friday’s closing price of $51,770. Below this level, there is a psychological barrier at $51,000.
What did the Fed decide?
The Federal Reserve maintained its current interest rate setting of 3.75-4.00% on October 28, following a 10-2 vote. Two members of the Fed’s policy-setting committee voted to increase rates.
The post Dow Jones Index Forecast: Will 52,000 Hold After Fed? appeared first in UK on InvestingCube .
