Dow hits key level as stocks extend rally

Following on Tuesday’s bullish reversal, we saw some big moves in European indices today, before Wall Street provided an extra bout of buying power. Markets have made back a good chunk of their losses suffered in the aftermath of the hawkish ECB and FOMC meetings. Yet, it remains to be seen whether the sellers will come back now as the major indices test key levels, given that we haven’t had many bullish catalysts since those central bank meetings.

Market sentiment remains largely cagey. The two-day rebound we have seen suggests investors have now digested those hawkish central bank meetings. But I am struggling to find compelling reasons as to why the bulls will keep on buying stocks going forward. So, there may yet be more drama to come in these last few trading days of 2023.

I reckon the markets face a bumpy road ahead as high inflation continues to hurt consumer pockets and, in turn, company top and bottom lines. And with more rate increases to come, this is far from an ideal environment for stock markets to thrive. We have already had a bif recover

Anyway, we will leave the fundamentals aside and concentrate on the charts. And one particular market that has just caught my attention is the Dow:

At the time of writing, the Dow was testing key resistance around 33400 area. As you can see, this level was the last major support before it broke down last week. Once support, could it now turn into strong resistance leading to a big sell-off?

If resistance holds here, I would expect to see a drop back to the high of Tuesday’s range at 33,000. And if that level fails to offer support, then there is a possibility we will see a revisit of the week’s low, which at 32500 happens to be where the 200-day average comes into play.

However, if resistance at 33400 breaks convincingly, then that would end the renewed bearish bias.