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Dow Surges Ahead of Fed Decision

David Becker
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www.iforex.com
Dow Surges Ahead of Fed Decision

After a big advance in August, stocks succumbed to some selling pressure in September. This selling pressure, however, has been mixed throughout the stock market. Small-caps bore the brunt of selling pressure with the Russell 2000 falling over 2% in September so far. Large-caps, in contrast, are holding up much better because the Dow Industrials and S&P Large-Cap 100 are down around .5%, which hardly qualifies as a correction. Compared to the August advance, the September decline is just a shallow pullback so far. In fact the Dow Industrial Average hit an intra-day all-time high on Tuesday. The Dow Industrials surging 5% in August and then formed a small flag this month.

Differences can also be seen in sector performance. The Technology SPDR (XLK) and the Consumer Staples SPDR (XLP) are the only two sectors showing gains. The Industrials SPDR (XLI) shows the smallest loss and shows relative strength because it is down much less than SPY. Utilities, materials and energy show both relative and absolute weakness this month.

The Aerospace & Defense ETF (PPA) is part of the industrials sector and this ETF is holding up well in September. PPA reversed in early August and broke above the June trend line. The ETF stalled over the last few weeks, but has yet to break down or give up its gains.

The technical picture on the Dow Industrials shows that the index is attempting to break out and form a reverse head and shoulder pattern. Momentum is poised to turn positive with the MACD (moving average convergence divergence) index generating a buy signal. Support is seen near the 50-day moving average while resistance is seen near the all-time highs at 17,161.

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