Dow Jones Industrial Average (DJIA) (Upward Bias)

• The S&P 500, DJIA, and NASDAQ each rose by more than 1%, marking their fifth consecutive week of gains and extending the market's recovery from a rough start in September. The S&P 500 and DJIA hit new record highs, while the NASDAQ closed less than 2% below its historic peak. Earnings season kicked off with two major U.S. banks reporting strong 3Q results, boosting their shares. Meanwhile, the 10-year U.S. Treasury yield rose for the fourth straight week, closing at 4.08%, up from 3.98% the previous week, as inflation data tempered expectations for further interest-rate cuts.
• Despite rising geopolitical risks, higher oil prices, and yields, stocks have continued to climb and may extend their upward momentum heading into Election Day, though some pullbacks are expected. This week's focus will be on 3Q earnings reports, with 462 U.S. firms reporting (including 44 S&P 500 companies), and analysts forecasting 4.1% earnings growth for S&P 500 companies, according to FactSet. Thursday's Retail Sales report will also provide insight into U.S. consumer strength. Any unexpectedly weak Retail Sales data or disappointing 3Q earnings could trigger a pullback, especially given the market's elevated valuations and reliance on strong earnings growth.
• Technically, the DJIA remains within its upward trend, staying above all its major SMA lines, indicating that its bullish momentum is still intact. However, its weekly stochastic and RSI indicators have entered overbought territory, signalling that a near-term pullback may be imminent. Additionally, the SmartMCDX banker chip level has exceeded 15, reinforcing the potential for a retracement.
• Despite these mixed technical signals, we expect the market to remain upward-biased this week due to its strong trend. A weaker-than-expected Retail Sales report or disappointing Q3 earnings could trigger a pullback, but strong bargain hunting may occur near the 5-week SMA (around the 41,700 level). Key resistance levels are 43,000 and 43,406, while immediate support is seen at 41,700, followed by 40,259.

Source: Kenanga Research -