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Dow Jones Forecast: Momentum Stocks Gain Ground but Resistance Weighs Heavy

Dow Jones Forecast: Momentum Stocks Gain Ground but Resistance Weighs Heavy

Peter Hanks, Strategist

Dow Jones Forecast

  • The Dow Jones is narrowly beneath all-time highs on the back of September’s FOMC meeting
  • As the session progressed, the DJIA forfeited earlier established gains and closed modestly lower
  • Still, a recovery in technology and momentum stocks hint at recovery risk appetite after an unwind in some of the more aggressive sectors and a huge SPY ETF outflow

Dow Jones Forecast: Momentum Stocks Gain Ground but Resistance Weighs Heavy

The post-FOMC optimism carried through the Asian and European sessions with the New York open treading slightly higher. After pressing to fresh intraday highs, stocks retreated - possibly due to a modest deterioration in trade sentiment after Chinese state media asserted China was not under any pressure to sign a deal. Still, momentum stocks were able to regain ground against their value counterparts which could hint at a minor uptick in underlying risk appetite.

Dow Jones Price Chart: Daily Time Frame (January 2016 – September 2019) (Chart 1)

dow jones price chart forecast

Charted created with TradingView. MTUM/VLUE ETF in Green

As I noted last week, a record performance of value compared to momentum stocks sparked concern among some market participants as they saw the rotation as a possible unwinding from riskier shares ahead of the Fed. Thus, the relative performance of the two funds this week helps to stem deeper concern. It could also be argued the rotation back into the typically higher-yielding momentum stocks reveals some investors are looking to bet on a break higher as the Dow Jones Industrial Average tiptoes ever closer to all-time highs. That said, with an indecisive – but slightly dovish – Fed and an upcoming meeting between US and Chinese delegates, the fundamental landscape is particularly encouraging relative to weeks past, but price still lurks beneath technical resistance.

Dow Jones Price Chart: Daily Time Frame (February 2018 – September 2019) (Chart 2)

dow jones price chart

Charted created with TradingView.

Across a broader timeframe, the DJIA finds itself locked within a wide and gradually sloping channel. The previous all-time high around 27,410 will look to initially stall price, but even if it is surpassed, the Dow Jones may not be in the clear. According to prior highs, the final barrier may reside nearer to 27,500 and a failure to breach this level could see the Index fall back into the depths of the channel. While fluctuations in price are entirely expected, it is somewhat concerning the Dow has been unable to post a fresh high amid the alignment of encouraging fundamental developments.

Consequently, the current standing of the Dow Jones feels rather precarious. Trading indecisively below two areas of substantial technical influence and with generous open air beneath, even the slightest negative development could see the Index forfeit gains gathered earlier in September. Therefore, until these fundamental themes are truly resolved – a US-China trade deal and a confirmed monetary policy path – the DJIA could remain locked in the larger channel, which has seen the Index climb just 1.8% since its inception in January 2018. In the meantime, shorter-term price action could continue to fluctuate wildly. For updates and further analysis on the Dow Jones and other equity markets, follow @PeterHanksFX on Twitter.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Nasdaq 100 Technical Forecast: Record Levels in Sight After FOMC

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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