2 Numbers to Watch on the Dow’s Chart

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Stocks rose on a broad front Tuesday, led by the blue-chip Dow Jones Industrial Average, which gained 1.4% to close at its highest level in nearly three weeks. The broad-based S&P 500 rose 1.3% with all 10 of its sectors advancing.

Investors appeared to be anticipating the Federal Reserve will refrain from raising interest rates on Thursday, delaying the process until December or even next year. However, The Wall Street Journal reported 46% of the business and academic economists it surveyed expect a rate increase following the Sept. 16-17 policy meeting. But this is down from 82% in early August.

With the recent rise in stock prices, the CBOE Volatility Index (VIX) shows considerably less fear among investors. The VIX fell 7.1% to 22.54 on Tuesday. While that is high by historical standards, the index rose to over 53 in late August.

The Dow Jones Transportation Average rose 1.9%. Many economists consider this index to be an indication of future strength in the economy.

Retail sales rose 0.2% in August. The Empire Manufacturing Survey contracted for the second straight month in September. Capacity utilization hit 77.6% versus an expected 77.8%.

The U.S. dollar rose against the euro, which fell 0.3% to $1.1274. Gold lost 0.4% at $1,102.80 an ounce, and October crude oil futures were up 1.3% at $44.59 a barrel.

At Tuesday’s close, the Dow Jones Industrial Average rose 229 points to 16,600, the S&P 500 gained 25 points at 1,978, the Nasdaq was up 55 points at 4,861, and the Russell 2000 added 13 points at 1,166.

The NYSE Composite’s primary market traded over 765 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 2.3-to-1, and on the Nasdaq, advancers led by 2.2-to-1.

Dow Jones Industrial Average Chart
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Chart Key

Most indices mirror the weekly chart of the Dow Jones Industrial Average, so a study of it could be predictive.

The break lower in August ended with a dramatic reversal off a low of 15,370, which was 16.2% below the May 22 high of 18,351. This was a shock and did a significant amount of damage to the long-term trend.

The weekly chart’s near-term pattern is that of an ascending triangle with tops at about 16,650. A close above that level could easily trigger a tradable jump to the resistance line at around 17,160. However, a break below 16,000 would be to the bears’ delight.

Conclusion

The first week of the reversal from 15,370, which established the current resistance line at 16,650, was on high volume. Volume has since fallen sharply, so that top has become a meaningful resistance line.

Even though this week’s FOMC meeting announcement could cause volatility, I wouldn’t expect it to result in a meaningful shift in stock prices. The Jewish holy days of Rosh Hashanah and Yom Kippur will take some volume from the market, and the massive overhead is enough to make long-term buyers wait for a more defined outlook.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


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