To The Moon

Hi Tigers!

As of Tuesday, the Dow Jones Index has experienced a 9-day losing streak, marking its longest decline in nearly 40 years. From a technical perspective, the Dow appears heavily oversold in the short term, and the TD Sequential Indicator on the daily chart is signaling a potential reversal.

So, is now the time to buy the dip in the Dow Jones or related sectors?

Hold on! Let’s first take a look at two major events happening this week:

1.Fed Rate Decision on Wednesday

This Wednesday, the Federal Reserve will announce its final rate decision for the year. Officials are likely to approve a third consecutive rate cut while hinting at a more cautious approach to rate cuts next year.

Recent data suggests the economy has performed better than officials expected during their September meeting. This could lead policymakers to raise their forecasts for economic growth, lower unemployment, and higher inflation in the updated projections.

A key part of the updated forecast will be the "dot plot," which maps out the expected path for interest rates. According to a Bloomberg survey, most economists believe the Fed will signal three rate cuts in 2025, one fewer than predicted in September.

In contrast, market expectations are more hawkish. Based on CME FedWatch data, markets predict just two rate cuts in 2025 following this week’s decision.

The Fed's decision and its updated Summary of Economic Projections (SEP) will be released at 3:00 AM ET on Thursday, followed by a press conference with Fed Chair Jerome Powell at 3:30 AM.

Nick Timiraos, often referred to as the “Fed’s mouthpiece,” has noted that the Fed is divided over whether further rate cuts are necessary. If the economy continues to grow steadily, the case for more cuts becomes less compelling.

Timiraos suggests that Powell may take a middle ground this week: cutting rates now while signaling that the Fed could pause for one or more meetings before cutting again. At the September meeting, officials predicted four rate cuts for 2025, but the latest projections may reduce this to two or three.

JPMorgan expects no major changes in Powell’s guidance but believes the January meeting could be a pause. The bank forecasts that economic projections will show stronger growth and higher inflation this year, with the dot plot revised to predict three rate cuts in 2025 instead of four.

In summary: A December rate cut is highly likely, but uncertainty around the pace of cuts next year could dampen short-term market enthusiasm if Powell adopts a more hawkish tone.

2.Nasdaq Rebalancing on Friday

Friday could pose risks for tech stocks as the Nasdaq-100 Index undergoes rebalancing.

The last time the seven major tech giants’ weightings were reduced in the Nasdaq-100 was back in July 2023, which led to three months of choppy declines. Now, a year and a half later, their strong gains have pushed weightings high enough to trigger another rebalancing. This is expected to create short-term pressure on tech stocks.

The rebalancing is designed to limit the influence of the largest members in the index. In 2023, rebalancing was triggered when companies with weights above 4.5% collectively exceeded 48% of the index. This threshold has been hit again, partly due to surging stock prices for TSLA and AVGO.

Currently, eight companies, including NVIDIA, Amazon, Meta, Tesla, and Google, make up nearly 52% of the Nasdaq-100. However, rebalancing could reduce their combined weight to around 40%.

This means their collective weighting could drop by 12%, potentially triggering adjustments worth around $40 billion, given the Nasdaq-100 ETF (QQQ) is valued at $331.8 billion. Since these stocks are near all-time highs, such significant adjustments could put short-term pressure on the tech sector.

Adding to this, Friday is also a “quad witching” day, which often serves as a market turning point. If the Dow stabilizes in the coming days, we could see a rotation from tech stocks to value stocks, with tech pulling back and value catching up.

In this context, building positions in the Dow Jones or related sectors this week could present good trading opportunities.

3.Key Trading Opportunities This Week

Consider the following options in the Dow Jones or sectors like financials, consumer staples, and utilities:

I will share weekly trading trends based on market highlights. Interested users can check the “Wealth” tab under “Featured” or “Weekly Wealth Trends” for more information!

Disclaimer: The listed tradeable assets are data-based summaries and do not constitute investment advice.