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The Dow Is Fizzling – But Stocks Just Did Something Insanely Bullish

Last Updated September 23, 2020 2:20 PM
Josiah Wilmoth
Last Updated September 23, 2020 2:20 PM
  • The Dow fell on Friday, threatening the stock market’s five-day winning streak.
  • Trump’s executive orders banning TikTok and WeChat put pressure on equity prices.
  • The Dow painted a bullish technical formation on Thursday – and it could point to more gains over the long-term.

If you hear a strange snoring sound on Wall Street today, don’t be alarmed. It’s just Dow Jones bears reentering hibernation.

The Dow may be trading down today, but doomsday analysts have plenty of reason to go dormant. The stock market’s bellwether index completed a technical formation called a “golden cross” on Thursday – and it’s insanely bullish for stocks.

Dow Bleeds Lower – But the Technical Picture Looks Bullish

Bullish technical formation or not, U.S. stocks are struggling on Friday morning. The Dow’s five-day winning streak could be at risk.

As of 9:57 am ET, the Dow had lost 74.26 points or 0.27%. The pullback – which was led by ~1.5% losses from Chevron and Exxon Mobil – dropped the index to 27,312.72.

dow jones chart today
The Dow may snap a five-day winning streak on Friday. | Source: Yahoo Finance 

The S&P 500 and Nasdaq traded mostly flat after recovering from moderate losses previewed by the overnight futures session.

The S&P 500 dipped 0.07% to 3,346.73, while the Nasdaq edged 0.03% lower to 11,105.13

Wall Street’s immediate concern today is the fallout from President Donald Trump’s executive orders banning TikTok and WeChat. Details about the “ban” remain hazy, but it’s set to take effect in 45 days.

Video: Trump’s Assault on TikTok & WeChat Throws a New Wrinkle into U.S.-China Relations

Trump had already given ByteDance – TikTok’s developer – an ultimatum: Sell the app’s U.S. operations to a U.S. company or risk expulsion. These orders up the ante. According to analysts at Eurasia Group, it could be a “turning point”  in U.S.-China tensions:

The US actions against TikTok and WeChat could be a turning point in Beijing’s calculus around how to respond to the US policy actions that have now either impacted or threatened to impact all of China’s national tech champions.

The White House assault on Chinese tech companies overshadowed Friday’s employment report, which beat expectations.

The labor market added 1.763 million jobs in July, surpassing estimates of 1.53 million. The unemployment rate fell to 10.2% from 11.1% in June.

The stock market faces a dizzying docket of short-term threats. The pandemic. Stimulus gridlock. An unemployment crisis. The election. Seasonal trends. And now an inevitable flare-up in U.S.-China tensions. It seems like the list grows longer by the day.

That’s the bad news – but there’s good news too.

The Dow Formed a ‘Golden Cross’ – Here’s What That Means

The Dow Jones Industrial Average (DJIA) formed a “golden cross”  on Thursday. This formation occurs when an asset price’s 50-day moving average shoots above its 200-day MA.

Although far from an ironclad indicator, the golden cross technical formation often precedes long-term rallies.

dow jones golden cross chart
Here’s the most important thing to remember about the “golden cross”: it’s a long-term indicator. | Source: Twitter 

The S&P 500 formed a golden cross of its own  a month ago. At the time, Bank of America chief equity technical strategist Stephen Suttmeier said the formation is a particularly potent signal during recessions.

Recession Golden Crosses indicate an improving equity market during periods of economic stress.

Here’s the most important thing to remember about the “golden cross”: it’s a long-term indicator. There’s no guarantee the Dow is going to go on a rampage today, next week – or even next month.

Not every analyst thinks the golden cross is an indicator worth trading on. And even those who do warn it can sometimes be a trap.

Ari Wald, head of technical analysis at Oppenheimer & Co., put it this way: 

All big rallies start with a golden cross, but not all golden crosses lead to a big rally.

This is particularly true during periods of enhanced volatility.

Don’t forget that the Dow formed a “death cross” – the opposite of a golden cross – during the stock market meltdown in March. Bears predicted that this death cross augured an even steeper crash ahead.

That didn’t happen.