The Dow has given a bullish signal known as the “Golden Cross” on the 1st of October. The last time this happened was in June of 2009, which was followed by a 3000-point gain in the months that followed.
Does this mean that we have only seen the beginning of another huge leg up in stocks? A 300-point gain would place the Dow over 14,000 which is the previous historical high.
While it’s impossible to say with any certainty, the possibility of this rally continuing should not be ruled out. The Golden Cross is just another bullish sign that should be taken into consideration.
SPDR Dow Jones Industrial ETF (NYSE:DIA) Daily Chart
From a technical perspective, we are overbought and a pullback to the $106.50 level would be very healthy. Building a base from there would be a good launch pad which could see the SPDR Dow Jones Industrial ETF (NYSE:DIA) surpass the $112.50 level, which is the equivalent of $11,300 in the Dow. We’re currently above the 200-day moving average and still holding above the 10-day moving average. The 50-day moving average has crossed above the 200-day, producing the Golden Cross.
If the Dollar catches a bounce, a pullback is extremely likely, but I would be buying (NYSE:DIA) at a test of $106.50. I would not expect this level to be breached, but if it is, $105 is the next nearby support. Below $105, I would exit and re-evaluate.
We’ve still got some Fed statements on tap for this week in addition to earnings reports, so things could get interesting. With the November elections looming, the markets may try to keep the rally up until then. We’ll see what happens next.