The name of the game this week was the US elections, and the Dow Jones reflects the uncertainty perfectly. It drifted lower a few days prior to Election Day and then bounced over a thousand points.
Moreover, it paused during Election Day right at a possible neckline belonging to an inversed head and shoulders pattern. A clear breakthrough may lead to the market’s attempt to new all-time highs.
Is this possible under such times of uncertainty, as no one knows the name of the future President of the United States?
Democrat President and Republican Senate Bullish for Equities
One thing is for sure – there is no “blue wave” as an outcome of the US elections. As such, the most bullish scenario for stocks (at least in the market’s interpretation prior to Election Day) is out of the table.
However, the stocks appear to rally pre-market on the back of a possible Democrat President and Republican Senate scenario. In this case, the logic is that corporate tax cuts will not be reversed. Hence, bullish for US corporations and a possible explanation for why the Dow Jones and Nasdaq 100, among other indices, are seen higher.
But the elections’ outcome is not known yet, and changes may still appear. In the end, we may end up with a “red wave.” The logic here would be for the stock market to decline, but if we consider that stocks loved the first for years under Trump, why not liking the next four?
Dow Jones Inversed Head and Shoulders
This is a basic reversal pattern that the Dow Jones forms on the hourly chart. It aims at mainly pointing the consolidation in the possible right shoulder as Election Day unfolded. Bulls may want to wait for the cash to open and wait for a close above 27,800 before going long. Invalidation comes on a move below the Election Day lows, and a proper take profit points to a new all-time high.
Dow Jones Daily Chart