Dow Puts in 1,100 Point Bounce as a Bearish October Winds Down
Dow Jones Talking Points:
- The end of what was a brutal October for US stocks is nearing, and US equities have posed brisk topside rallies through Tuesday and Wednesday trade as a portion of those prior losses have been recouped. But we may not yet be out of the woods, as a series of drivers is on the horizon: Tomorrow brings the Bank of England’s Super Thursday and after the close, Apple will report earnings. Friday morning brings US jobs numbers, and next Tuesday brings mid-term elections in the US.
- The two-day bounce across stocks is quite noticeable, and this took place after what may have been capitulation on Monday. This week opened with a continuation of selling, and the Dow perched down to a fresh three-month-low around 24,127 during Monday’s session. But since then a very visible rally has developed that’s seen prices gain more than 1,150 points off of the lows.
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Dow Rallies at Month-End
As markets near the end of what had become a brutal October, a bit of optimism has crept in across US equities. This is a change-of-pace to be sure, as much of the past month has seen price action beset by negative headline after negative headline, to the degree that even a fairly healthy earnings season thus far had been unable to turn the tide of selling. Heavy risk events remain on the horizon, as this Friday brings Non-Farm Payroll numbers out of the United States. Next week brings mid-term elections in a political environment that could easily be classified as ‘contentious,’ and this could have impact to risk markets, albeit to a likely lesser degree from what was seen around the US Presidential Election in November of 2016.
But – this week has so far seen strength come back into global equities, begging the question as to whether we’ve the low already print across US indices. In the Dow, this week started the same way that last week ended – with selling. But a bit of support began to show late in Monday’s US session, and that support held through the overnight until a robust rally showed through Tuesday price action. That enthusiasm has so far lasted into Wednesday trade, leading to a move back above the 25k psychological level on the chart.
Dow Four-Hour Price Chart: Retraces More than 38.2% of October Sell-Off During Two-Day Rally
Chart prepared by James Stanley
Shorter-Term Strategies May Favor Strength if Support Can Hold Through Month Open
Tomorrow brings a fresh month to go along with a Bank of England ‘Super Thursday’ rate decision, and Apple reports earnings after tomorrow’s US equity close. The next morning brings Non-Farm Payrolls, and that leads into next week’s mid-term elections. So the current environment is one rife with potential drivers on the calendar, and this is something that can keep the risk trade volatile in the near-term.
For shorter-term strategies, bulls may be able to start dipping their toes into the water as prices have shown a respectable build of topside price action. In this week’s technical forecast for equities, I cited a Fibonacci retracement as a key marker on the charts, and that’s the 61.8% retracement from the Q3 bullish move. This level rests at 25,129, and is confluent with the 200 Day Moving Average. A test above this level, as we’ve seen today, can be a good first step to seeing a re-establishment of strength; and now that this has arrived, the key will be bulls maintaining the move to further indicate continuation of bullish price action.
This can open the door for higher-low support potential in the area of the chart that runs from the 25,000 psychological level up to the Fibonacci level at 25,129. For a bit of additional confirmation, traders can await tomorrow’s open to ensure that support does remain respected through the start of a fresh month.
Dow Four-Hour Price Chart: Bulls Can Push Higher-Highs, but Can They Yet Hold Higher-Lows?
Chart prepared by James Stanley
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.