Dow Jumps 1% as October Relief Rally Kicks Off

Bullish seasonality

The horrific month and quarter that saw all three main averages go into a bear market have investors still in shock. The SP500 index had its greatest monthly loss since the epidemic started in March 2020 with a loss of 9.3% in September. The Nasdaq Composite lost more than 10%, while the Dow declined more than 8%. The indices lost about 5.3%, 4.1%, and 6.7% over the quarter.

Some analysts are looking ahead to October, which has been dubbed a “bear-market killer” based on historically high returns, particularly in midterm election years. However, stocks have performed well in October every time the SP500 has declined by 7% or more in September, according to Ryan Detrick of Carson Group.

But this time could be different because of a high-stakes earnings season that is expected to be brought on by lowered predictions and deteriorating fundamentals linked to inflation and increasing interest rates.

Retail selling soon?

However, equity positions held by investors “remain high,” according to Goldman Sachs equity analysts, as compared to their longer-term history. The strategists predict “greater selling” of US stocks in 2023 as a result.

“Rising interest rates, slowing growth, and increased unemployment will drive households to continue selling stocks,” the strategist wrote in a client note on Friday.

Selling zones ahead

The target for this relief rally could be 29,700 USD, where previous major swing lows and last highs converge. Should the Dow jump above that level, we might see another leg higher in the short-term perspective, likely aiming at the 30k resistance.

Overall, the market seems heavily oversold, full of pessimistic news, likely staging an environment for a short-squeeze rally.

On the downside, the support is seen at today’s lows near 28,700 USD, and if not held, further decline toward 28,000 USD could occur quickly.