Key concerns about Friday’s rally | Exchange places with Tom Bowley

I would see a big uptick on the long-term weekly charts, especially the 20-week EMA support. This is exactly what happened with the Dow Jones Industrial Average ($INDU) on Friday. The large-company index has significantly underperformed other areas of the stock market and was on the verge of hitting its lowest weekly close since January on Friday. The April low weekly close was 37983.24 and the Friday low was 38000.96. So, after hitting an all-time high weekly (and daily) close at 40003.59 just two weeks ago, the Dow Jones was on the verge of moving to a close not far from its lowest weekly close of 2024.

Then the purchase occurred.

Maintaining 20-week EMA support during a long-term bull market rally is important, and the Dow has done just that. The Dow rose more than 300 points in the last 20 minutes. He was a fantastic finisher.

So what’s not to like about it? What is the opposite of “silver lining”? Maybe “Do all roses have thorns?”

Well, here’s the thorn.

The bottom panel shows that while the overall market has made a huge reversal, with the S&P 500 all the way up to its early-week levels, XLK is comparatively far behind. Cycling is part of the game and sometimes even during solid bull markets you will see funds circulating in technology. But keep one thing in mind. Technology (XLK) represents 29.2% of the S&P 500. Technology represents 49.29% of the NASDAQ 100 ($NDX), compared to 18.6% of the Dow Jones.

My point here is that if we see a departure from technology, even if only for a short period of time, we should expect to see outperformance in areas that don’t have as much technology exposure, like the Dow Jones. And after seeing the Dow reverse at the 20-week EMA, I believe the Dow Jones will perform better during the month of June.

Sign up for the EB Digest (EBD) newsletter today and enjoy other thought-provoking charts published three times a week. We’ll be discussing this on Monday’s EBD, so find out your favorite segment for June. Click here to start your free subscription today!

Happy trading!

tom