Is it a Bear Market Bounce or a New Rally?
In October, we witnessed the Dow Jones Industrial Average ($DJI) recover thousands of points, to complete the largest (single month) move up since 1976. Putting this into context, this significant rebound came after one of the largest selloffs since the 2008 financial crisis. This is typical of a Bear Market Rally, meaning sharp selloffs are followed by sharp recoveries, making for some exceptionally volatile markets!
This chart of the $DIA shows how deeply overbought the Dow Jones has gotten on this latest rally to the upside. Notice the swing up is about as long as the previous one and is now coming into a major area of resistance and major moving averages. Please note that the CCI also indicates that it is deeply overbought.
What constituted the big rebound off the market lows for the month of October? First, was the better than expected earnings season. Many companies did not do as poorly as they were expected to, although expectations were set quite low after a year of reduced guidance.
Next, this market recovery was fueled by a change in expectations regarding the Federal Reserve interest rate policy. Did the Fed actually change any guidance to indicate that it would change its policy going forward? The answer to that question is squarely “NO”. Everything still indicates that we are in a period of rising interest rates through to the end of 2023. The November 2nd meeting (the last Fed meeting of 2022) will include a 75 or 100 basis point increase, bringing interest rates to 4%. Inflation is still raging around the world and there is only one solution to raging inflation. The current rate of inflation is about 8.5%, which indicates that the Federal Reserve will have to continue to raise interest rates by 75 basis points for all of 2023. If interest rates rise, the dollar will continue to rise with them. A strong dollar generally means a weak market for equities and other assets such as real estate.
Finally, the U.S. midterm election occurs the first week of November. That huge amount of uncertainty still looms over these markets. Market uncertainty tends to breed more volatility, not less. The results of the election will help traders and investors put their money to work with more confidence as they will know the political makeup of the U.S. Congress for the next two years.
Gold is making a triple bottom on the daily chart, as indicated by $GLD the Gold ETF Exchange traded fund. This is an interesting correlation to the seasonal low that is usually established in November, which starts the holiday season and usually runs until the end of February when the Chinese New Year occurs. The seasonal run is caused by an increased demand for gold related to buying gold as part of the tradition of giving golden gifts.
When you’re trading volatile and uncertain markets, the best thing you can do is to be cautious. Favor the short-term over the long-term until the markets seem to be more clear. Trade cautiously and trade well.
Market Research and Analysis provided by Michael DiGioia, Director of Educational Services
What’s New from DAS
During the month of September, we released the production version: 220.127.116.11. This version includes a number of fixes and enhancements that are listed below:
Charts & Platform
-Added snap feature for trend lines which will snap to 0.1 price increment.
-Pressing Shift key will snap to hi/lo of a candle bar.
-For stocks with price >1$, added option to draw horizontal grid line to 0.25 increment.
-Increased performance for account monitor window.
-Short Locate: Symbol box is uppercase by default now.
-Admin Short Locate window: Added filter function.
-Updated Level 1 short indicator display format: LocateStatus(S/HTB/SPB).SSRStatus(SSR).HaltStatus(P/T)
-Share= hotkey should not be processed if chart window is not on focus.
-Added new Share hotkey script with format “Share=1000/StopPrice”.
-Quote replay: bug fix – order open share not updated after replacing order.
-Latest candle bar froze after loading cst file.
-CMDAPI: Return original order id (origoid) in %ORDER data.
-CMDAPI: Added commands “GET AccountInfo” and “$AccountInfo” to request account’s equity, PL and fees etc.
We highly recommend that you review the release notes here.
Please be sure to install the latest version of the DAS Trader Pro platform. You can do this very easily from DAS by clicking Tools > Auto Upgrade. You can learn more about the Auto Upgrade feature in our Knowledge Base.
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