Should you buy DJIA ahead of Q4 2023? Hint: yes

Stocks have had a challenging year so far. After all, the Fed’s tightening cycle made it difficult for investors to hold on to their portfolios and not flee for safer assets.

But where to go to? Surely, those fleeing for bonds are unhappy with the results, as the bond market tanked in September. Therefore, it is a bit of a tradeoff.

However, the stock market’s resilience in front of the Fed’s tightening cycle is remarkable. To better understand it, it is useful to take a step back and have a look at the bigger picture.

Here is the naked DJIA daily chart since 2021.

What do you see?

How to interpret a naked chart

From left to right, the DJIA index rallied in 2021 on the back of the Fed’s easing and all the fiscal and monetary stimulus provided in response to the COVID-19 pandemic.

It peaked at 37,000.

What followed was a drop of a little more than 20%. As a long-term investor, one should be used to such dips. What is obvious here is that investors hurried to buy the dip, as buying with a 20% discount was tempting.

And so the market rallied back in October 2022 all the way to 35,000 points. That is, only 2k points from the all-time high.

More or less, these are the levels 2023 started with. DJIA gave it a shot at the highs during the summer, but it failed close to 36k – once again, very close to all-time levels.

Even the current drop in September is not scary as long as DJIA trades near historical highs. If anything, the pattern since the all-time high level looks like an inverse head and shoulders. Whenever it forms close to the highs, it is usually resolved with another high.

Hence, if that is a path of least resistance to US stocks, my take is that it is the upside.

How long will it take until we see a new all-time high? Not so long, says the DJIA price action.