While we are bullish on stock indexes like the S&P 500 and the Dow Jones, we forecast that both rotation and the consensus trade might result in volatility picking up around current levels. Ultimately, the Dow Jones will print new all-time highs in 2024, however the exact timing and new highs might come with an unexpected outcome.
Recently, we covered multiple Dow Jones chart timeframes, with conclusions about our 2024 expectations.
From our chart analysis published in Dow Jones Long Term Chart On 20 Years:
The Dow Jones long term chart on 20 years suggests that a 24-month risk-off period is near completion which bodes well for 2024.
In Dow Jones Historical Chart On 100 Years we looked at the secular, longest term chart pattern:
We do expect that the Dow Jones will conclude its consolidation in 2023. This should open the door for a breakout early 2024. We should remain cautious in the summer of 2024. One potential scenario is a breakout above 36k points early 2024, followed by a strong rally and a re-test of 36k points. Note that we may derive other scenarios from our charting and timeline analysis, however we prefer to re-visit the scenarios early 2024.
That said, the shorter term Dow Jones timeframe is the one that we want to look at to understand. If we compare the Dow Jones daily chart with the one from small caps as said in Bitcoin vs. small caps Russell 2000, we can clearly see the divergence between small caps and large caps.
This brings up the rotational effect, in fact heavy rotation, between sectors and segments of the market.
We expect this rotational dynamic to continue in 2024 which is why, ultimately, the Dow Jones should reach new all-time highs in 2024. The outlier, of course, is small caps who might have more upside potential.
What we expect is increased volatility as the Dow Jones gets to new highs. As said many times, volatility is rotation in disguise. So, as the Dow reaches new highs, volatility will pick up and investors should be looking for signs whether rotational effects will kick in.
While we believe the Dow Jones will sooner or later will print new highs, we also do expect higher volatility levels and rotation to pick up.
