Dow Jones
Dow Jones move without direction recently. The last week or so brought only uncertainty as the U.S. elections loom, and the fiscal stimulus is not extended.
After all, it is just a political battle ahead of a tough battle for both the White House and the Congress. But the Dow keeps a bullish bias as it is relentlessly finding bids on each and every attempt to break lower.
But why would fiscal stimulus talks be positive for stocks? After all, if this is just a temporary thing during the coronavirus pandemic, once the pandemic is behind us, no more fiscal stimulus is needed – right?
Not necessarily. The market knows that this is a win-win situation. At this point in time, the discussions center around the second package of about $2 trillion. But depending on who is winning the elections, the fiscal expansion continues at a different pace. But it continues regardless of the candidate who wins. The only thing that matters is the election outcome in terms of who controls the White House and Congress. A mixed result means a different size of fiscal stimulus moving forward, while the other combinations also signal different outcomes.
But the fiscal expansion is poised to remain in place for a long period of time from now on. Hence, the stock market should be supported on each and every dip.
The chart below shows the Dow Jones reluctant to make a new high. Instead, it consolidates right above the neckline of an inversed head and shoulders pattern. On the index breaking the upper edge of the triangle, bulls will likely step in and buy the break. That means an entry at 28,800, a stop at 28,000, and a target at the round 30,000 number or even beyond.
