Appetite for stocks sends Dow to fresh record

US stocks are up for a fourth day, extending their run after the Federal Reserve last night decided to keep the “considerable time” pledge until the first rate hike in the FOMC statement. This boosted stocks, sending the Dow and today the S&P to fresh record highs. Today’s mostly weaker data shows us why the Fed is still not as hawkish as some had thought they might have been. Although jobless claims were down by a good 36,000 applications last week to 280,000, easily beating the consensus forecasts, housing starts and building permits both plunged in August by 14.4 and 5.6 per cent respectively. And on a regional level, manufacturing expansion slowed down in the Philadelphia area somewhat more sharply than had been expected. Nevertheless, the market once again took the bad economic news in its stride. Meanwhile investors are also looking forward to Alibaba’s IPO tomorrow, which, if goes smoothly, could lend additional buoyancy to stocks, especially in the technology sector. We have prepared a full review for Alibaba’s IPO – click HERE if interested. Meanwhile in Europe, all eyes are on the outcome of the Scottish independence vote. If they choose to stay in the union, the UK’s FTSE could stage a relief rally which may provide some impetus for global stocks, including the US markets.

Technical outlook

As mentioned, the Dow is trading at a fresh multi-year high. And judging by the chart, below, it looks like more gains could be on the way. As can be seen, the FOMC’s initial reaction left behind a doji candle on the 4-hour time frame, which is often the case following such a big fundamental event. The doji candle indicates that the market was initially unsure how to react but the fact that Dow has since pushed higher, taking out yesterday’s high in the process, suggests that the bulls have remained in full control of things. So, unless the index unexpectedly turns back around and finishes the day below the key 17150 support level, I think that we could see continued push higher into uncharted territories. My next three bullish targets are around 17310, 17395 and 17545. These levels correspond with the Fibonacci extension levels that can be seen on the chart. Meanwhile the 4-hour RSI has again drifted into the overbought territory which shows how strong a move we have seen over the last several days. It also indicates that a possible pullback is due soon. We may therefore see some hesitation around those Fibonacci-based levels, should the index get there.

Figure 1:

Source: FOREX.com. Please note this product is not available to US clients.