Dow Jones Industrial Average (DJIA) (BULLISH BIAS)

• In November, the US stock market closed on a positive note, driven by optimism stemming from declining inflation, which raised hopes of the Fed discontinuing its interest rate hikes and possibly considering rate cuts in the coming year. Among the major indices, the Nasdaq outperformed the rest with an impressive 10.7% monthly gain, primarily attributed to the strength of the 'Magnificent 7' mega tech stocks. As a result, the Nasdaq's YTD gain reached 36%, marking a significant rebound from its 2022 performance. Additionally, the benchmark S&P 500 and the blue-chip DJIA posted strong performances in November, with gains of 8.4% and 8.8%, bringing their YTD gains to 19% and 8.5%, respectively. This resilience and positive momentum continued into December after the release of the Core PCE data, which showed receding inflation. This data led to the DJIA reaching its highest level for the year.

• Looking forward, historical data suggests that December tends to be a strong month for the stock market, with the benchmark S&P 500 index historically averaging gains of around 1.5% during this period, in contrast to an average gain of approximately 0.8% for other months. However, the rally could wobble if tensions spike after Red Sea attacks. Besides, the stock market rally will also face a pivotal moment at the Fed upcoming policy decision scheduled for Wednesday, December 14.

• Technically, the DJIA's weekly chart shows a sustained upward trend, supported by the Stochastic Oscillator and MCDX's banker chip trending upward. This bullish momentum is likely to continue, potentially testing the record high of 36,952 before the Fed meeting. Any downturn is anticipated to be short-lived and mild, barring significant economic data shifts, escalating conflicts in the Middle East conflict or altered interest rate cut expectations.

• Key resistance levels are identified at 36,952 and 38,048, while immediate support is noted at the previous high of 35,679, with additional support at 34,685 or the 5-week SMA.

Source: Kenanga Research - 4 Dec 2023