Dow Jones continued its rally as it remains the last major index that did not make a new all-time high during the pandemic. Nasdaq100 is already up over 40% for the year, and the S&P500 closed at record highs already. What keeps Dow lagging, and will it reduce the lag?
Dow Componence Just Changed
Because Apple chose to split its stock, Dow was forced to alter its componence so to reflect its tendency towards technology stocks. And, to maintain the weightings.
Salesforce entered while Exxon exited. And so on – four companies entered, and four left, effective September 1st. The result? A Dow Jones that marches higher towards all-time highs. The chances are that not only it will take the highs, but the Elliott Waves Theory points to further advance.
President Trump Cheering for the Dow
This is the election year, but it is not unusual to hear from President Trump cheering for the stock market. Or, supporting it during difficult times.
If in the past, he was complaining about the Fed and Jerome Powell, the strong dollar – recent market evolution and USD decline silenced the President.
Dow Jones Technical Analysis
The recent break higher resembles a triangle at the end of a running correction. Technical traders familiar with the Elliott Waves Theory call this a double-three running, a pattern usually followed by a 161.8% extension of the segment prior to the pattern’s formation.
If we apply the extension from the end of the e-wave, it points to a rally of about 8,000 points from the 28,000 ending point. More precisely, a rally towards the 36,000 target.
Before saying that this is an unrealistic target, consider the following. First, Dow’s composition changed. People tend to forget that indices rebalance and usually incorporate new “horses” or promising companies that will likely deliver strong results. Think of Apple – it only joined Dow recently.
Second, this is an election year. Equities rallying is something that happened in the past too. Why not happening again?