DJIA again testing 200-day MA

2022年11月7日

The big rally on Friday in global stock indices, metals and oil were mostly attributed to optimism about China dropping its zero Covid policy. At the weekend, however, Chinese officials affirmed “unswervingly” the country’s strict stance on Covid. This should have been negative for risk assets. And although that’s how it proved first thing at the Asian open, as index futures gapped lower along with copper and oil, indices later reversed their losses.

But could we see renewed selling pressure come into the markets again, with the like of the Dow, DAX and FTSE all testing their respective 200-day moving averages?

The Dow has raced ahead of the other US indices in this rebound and it has reached the 200-day moving average.

If this is still a bear trend, then we would expect the next leg of the down trend to start from around these levels.

Notice that the 200-day MA had capped the previous rallies earlier in the year.

Will history repeat itself?

If you focus on the slope of the 200-day average, it was previously positive, before flattening around the start of the year, and then trending lower. This is echoed on nearly all other major indices.

With the slope of the moving average being negative, the long-term trend is objectively bearish. The short-term trend has been bullish, however, with the index rising noticeably from its October lows in recent weeks.

But with the Dow now testing the 200-day, it is possible we might see a reversal in the short-term trend and go back in tune with the longer-term bearish trend.

By Fawad Razaqzada on behalf of FOREX.com