Don’t dis the Dow Jones Industrial Average just because it’s made up of only 30 stocks, because if the stock market is going to bounce back from last year’s selloff, it’ll be the Dow that leads it.
With the Dow
DJIA,
+2.13%
surging 762 points, or 2.3%, in afternoon trading Friday, on the back of upbeat jobs data, it climbed back above the 50-day moving average (DMA), which extends to about 33,348, according to FactSet data. The 50-DMA is a widely watched short-term trend tracker, being above it implies a bullish outlook for the near term.
And back on Dec. 14, the Dow’s 50-DMA crossed above the 200-DMA (32,421) to produce a bullish technical pattern known as a “golden cross.” Since the 200-DMA is viewed by many as a dividing line between longer-term uptrends and downtrends, a golden cross is seen as marking the spot a shorter-term bounce flips to a longer-term uptrend.
FactSet, MarketWatch
In addition, the Dow’s chart is showing a “minor breakout” above the bear-market downtrend line that started in early 2022, as pointed out by Dan Wantrobski, technical strategist at Janney Montgomery Scott.
FactSet, MarketWatch
Basically, the Dow is acting like it’s already started a new bullish uptrend.
“Though this in no way confirms a new bull market is at hand, it is an important first step in climbing out of the correction/basing cycle that stocks have been locked in for the past several months,” Wantrobski wrote in a recent note to clients.
The Dow has run up about 17% since closing at close to a two-year low at 28,725.51 on Sept. 30, 2022, which puts it in correction territory off the 2022 bear market. It would take a rally of 20% or more off that low, to at least 34,470.61, for Wall Street to stamp a new bull market on the Dow.
The Dow’s bullish stance is in stark contrast to the technical outlooks for the S&P 500
SPX,
+2.28%
index, the technology-heavy Nasdaq-100 Index
NDX,
+2.78%
and the Nasdaq Composite Index
COMP,
+2.56%,
which all remain locked within bearish chart patterns.
The S&P 500, which climbed 2.5% on Friday, is getting close to climbing back above its 50-DMA, which comes it at around 3,905, according to FactSet, but that 50-DMA is still below the 200-DMA at about 3,996. That’s also about the level where a downtrend line starting at the March 2020 recovery peak extends.
FactSet, MarketWatch
The charts are even more bearish for the Nasdaq-100:
FactSet, MarketWatch
And for the Nasdaq Composite:
FactSet, MarketWatch
“Obviously, much can change as we make our way through Q1 of 2023, but starting off the New Year, the DJIA is clearly in a position of technical strength relative to both the S&P 500 and Nasdaq-100 indices,” Janney’s Wantrobski wrote. “We believe this can continue as a trend in 2023, though it is likely to be interrupted from time to time.”
For investors wanting to trade the Dow, Wantrobski suggested using the SPDR Dow Jones Industrial Average exchange-traded fund
DIA,
+2.14%
as a proxy.
“We continue to like the DJIA here in a leadership role, and believe traders can utilize the DIA for some opportunistic trading plays in the coming weeks and months,” he wrote.