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Oct 17, 2022

Dow Futures Rebound as UK Tax Cuts Are Reversed, Where Next?

By:Ryan Sullivan

Where is The Dow now?

The Dow is currently trading just above 30,000. Down 17.07 percent from its opening price of 2022. The Dow’s all-time high price was set on January 5th, 2022. Since the all-time high, the market has been in a bear trend, which is generally reflected across the market as a whole and visualized in the Dow composite.

 

The Dow is currently testing resistance at the 30,600 price level. We bounced off this resistance level on October 5th, 2022 and are currently retesting. Prior to the last couple of months, the 28,800 to 30,600 price range was last traded from November of 2020 to January of 2021. 

GLD DIA TLT QQQ price action
Fig. 1: Year-to-date price percentage change for GLD, DIA, TLT, and QQQ.

Where is The Dow heading? 

The last three weeks of price action have been constructive. The current bear leg downward started back in August of 2022, when sellers took over. Sellers have had control of the Dow since then and have pushed the price down to where we are now, looking for buyers. 

In the last three weeks, it appears as though we have found buyers at significant volume. 28,635 appears to be a near-term bottom that we have already retested. This indicates the possibility of a near-term rally.

If The Dow can rally though 30,500, the next resistance level appears to be around 31,000. Over the next week or two, watch the velocity of the movement in The Dow and how quickly it breaks through resistance. If The Dow moves through 31,000 with force, it's possible that it shoots up to the 32,000 to 32,600 range.  

However, it is also possible that The Dow will remain in its current range over the next week, between 28,800 and 30,200. If it does, that will indicate the market wants to retest lows and possibly push lower. 

What’s moving the market?

The price action after the CPI was reported on October 13th, 2022 was straight down, then climbed back up for a gain on the day. This kind of price action after an event that historically makes that market react, is an indication that there are significant buyers in the market at the price levels we had yesterday, even after a report that was not positive.

It appears the market is reacting positively to bad news, which often seems to be the case. Another perspective is that the bad news wasn’t as bad as the market had priced in prior to the news. It is likely that the market is trading at a price level that accounts for the known fears.  

It is important to remember that the market is forward-looking. It is always trying to predict the future. There is a huge advantage to knowing information first and acting on that information quickly. Historically, the market rallies through midterms. We will see if the next few months of trading live up to those expectations. 

 

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