The Dow takes ‘important first step’ to a new bull market

By Tomi Kilgore

Dow Industrials climbed above the 50-DMA, which is above the 200-DMA, while the other indexes are still below the 50-DMAs

Don’t just ignore the Dow Jones Industrial Average because it only consists of 30 stocks, because if the stock market recovers from last year’s sell-off, it will be the Dow leading it.

Gaining 700.53 points, or 2.1%, to 33,630.61 on Friday, the Dow climbed back above its 50-day moving average (DMA) in the wake of upbeat jobs data, which has stretched, according to FactSet data. to 33,346.77. The 50-DMA is a popular short-term trend tracker. If you are above it, it means a bullish outlook for the short term.

And on Dec. 14, the Dow’s 50-DMA crossed above the 200-DMA (32,420.79) to produce a bullish technical pattern known as a “golden cross.” Since the 200-DMA is seen by many as a dividing line between longer-term uptrends and downtrends, a golden cross is seen as marking the spot where a shorter-term bounce turns into a longer-term uptrend.

In addition, the Dow chart shows a “small break” above the downtrend line of the bear market that began in early 2022, as noted by Dan Wantrobski, technical strategist at Janney Montgomery Scott.

Basically, the Dow is acting like it has already started another bullish uptrend.

“While this by no means confirms that a new bull market is on the way, it is an important first step toward breaking out of the correction/base cycle that stocks have been stuck in for the past several months,” Wantrobski wrote in a recent note to clients.

The Dow is up 17.1% since closing at about its two-year low of 28,725.51 on September 30, 2022, placing it in correction territory for the 2022 bear market. It would take a rally of 20% or more from that low, to at least 34,470.61, for Wall Street to declare another bull market on the Dow.

The Dow’s bullish stance contrasts sharply with the technical outlook for the S&P 500 Index, the tech-intensive Nasdaq-100 Index, and the Nasdaq Composite Index, all of which remain within bearish chart patterns.

The S&P 500, which rose 2.3% on Friday to 3,895.08 points. It has almost climbed back above its 50-DMA, which came in at 3,904.37 according to FactSet, but that 50-DMA is still below the 200-DMA at 3,996.04. That is also about the level at which a downward trendline starting at the March 2020 recovery peak extends.

The charts are even more bearish for the Nasdaq-100:

And for the Nasdaq Composite:

“Obviously a lot can change as we work our way through the first quarter of 2023, but as of the new year the DJIA is clearly in a position of technical strength relative to both the S&P 500 and Nasdaq. 100 indices,” wrote Janney’s Wantrobski. “We believe this may continue to be a trend into 2023, although it is likely to be interrupted from time to time.”

For investors looking to trade the Dow, Wantrobski suggested using the SPDR Dow Jones Industrial Average exchange-traded fund (DIA) as a proxy.

“We still like the DJIA in a leadership role here and believe traders can use the DIA for some opportunistic trading plays in the coming weeks and months,” he wrote.

-Tommy Kilgore

(END) Dow Jones Newswires

01-08-23 1116ET

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