DOW JONES OUTLOOK:
- Dow Jones rises for fourth consecutive day and closes near all-time highs
- Risk-on mood on healthy corporate earnings boosts blue-chip stocks with strong track record
- The technical outlook for the Dow Jones index remains firmly bullish following the confirmation of a double bottom pattern.
U.S. blue-chip stocks had a good day again, supported by positive sentiment in response to a solid start to earnings season across a wide range of sectors, a sign that inflation has not eaten into margins too much yet. Against this backdrop, the Dow Jones managed to climb for a fourth straight day on Wednesday, gaining 0.4% to close at 35,609, slightly below the intraday record of 35,670 set earlier in the session.
Despite the economic slowdown and elevated price pressures, corporate America remainson sturdy footing, as reflected by strong earnings and constructive forward guidance. If companies continue to outperform expectations and provide an upbeat assessment of the outlook without major profit warnings, stocks are likely to stay supported in the near term, even more so if macroeconomic data begins to stabilize as COVID-19 fears recede.
The general risk-on mood on Wall Street may serve as another bullish catalyst for equities heading into the final two months of the year. Increased risk appetite is evident in the cryptocurrency space, where digital tokens have posted huge gains in recent days, with Bitcoin hitting an all-time high above $66,000 earlier today. Needless to say, in an everything-rally situation, stocks can still command strength despite rich valuations and looming headwinds.
From a technical point of view, the Dow Jones cleared a key hurdle last Thursday by closing above its 50-day moving average. Since then, price has stretched higher, piercing critical resistance near 35,060 and validating a double-bottom formation. This bullish event may pave the way for a move towards 36,300 over the medium term, a level of interest obtained by projecting the height of the pattern from the neckline upside. Though gains may not follow a straight line, the technical set-up is firmly bullish on the daily chart.
On the other hand, if bears regain control of the market and the Dow Jones corrects lower, the first support to consider can be seen near 35,060. If sellers drive the index below this floor, the double-bottom pattern will be invalidated, in which case we could see a pullback towards 34,100.
DOW JONES TECHNICAL CHART
EDUCATION TOOLS FOR TRADERS
—Written by Diego Colman, Contributor