With only two trading days left in the month, stocks bounced from their 2022 lows. It may well be just a bounce and nothing more, but it coincides with the turnaround Tuesday bias, as explained here.
The rally came on the back of the Bank of England intervening in the UK bond market. It bought bonds to calm the market, and the trick worked.
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Risk bounced as investors bought stocks and sold the US dollar.
For stock market investors, 2022 has been a one-way street – to the downside. Those who received dividends may have used them to reinvest in stocks at better levels. However, so far, 2022 has been a down year.
The good news? Some of the best months of the year lie ahead.
Some of the best months for US stocks are coming up next
The weakness in the stock market is understandable, considering the tightening done by the Federal Reserve. The central bank raised the funds rate the fastest in the developed world. Also, it started the process of shrinking its balance sheet by selling bonds bought previously.
At this point, everyone trades one single market – the US stock market. All markets have become extremely correlated, and US stocks are in the lead. For instance, by betting on US stocks, you bet on the decline of the US dollar. Therefore, stock market traders are just like FX traders in this respect.
The good part is that stocks tend to rally in the last part of the year after weak August and September. Moreover, October turns out to be the best month during a midterm year.
DJIA meets dynamic support
From a technical perspective, the technical picture looks bearish. However, out of all the bearish things, such as the declining channel, some bullish signs start to emerge.
For instance, the DJIA did make a new low for the year, but it bounced from dynamic support, which is a bullish reaction. If it regains the 30,000 level, there is no resistance until dynamic resistance seen at 32,000.
Picking a bottom is never easy. It often ends up with failure.
However, markets do bottom eventually. And, if history tells us something, the last quarter of a midterm year brings gains to stock market investors.
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Image and article originally from invezz.com. Read the original article here.