Despite Yellen Rally, Dow still a Buy

Most technical metrics are providing us with a “Buy” signal on the Dow, which is currently trading above its 20, 50 and 100-day moving averages. However, Stochastic Oscillators suggest that the Index is creeping into the overbought territory. This reflects the market uncertainty centered on the Fed’s decision tomorrow. We expect volumes to be low today – and it is unclear that a signal will come through on either side.

At the sector level, we expect Financials to take advantage of the continuing low interest rate as the markets look at the industry favorably. The S&P Financials Sector Index is trading above its 20-day simple moving average. The MACD line crossed zero and a bullish centerline crossover occurred. Positive MACD indicates that the 12-day EMA is above the 26-day EMA and a further increase in positive values means that an upside momentum is increasing.

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Chart 1: S&P 500 Financials Index.

Our individual Dow 30 stock indicators are predicting a significant rise in volatility, while the RSI—one of our most successful short-term indicators—is advising a short position for 3M Co. (NYSE: MMM), The Walt Disney Co. (NYSE: DIS), and The Procter & Gamble Co. (NYSE: PG, as they are trading above the RSI 70 mark. The tightening Bollinger Bands on all three also signify an upcoming volatility. The recent data on consumer confidence and retail sales reflect the fundamentals that will support these technical predictions.

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