Index in focus: Dow Jones Industrial Average bursts to record high to start 2022

After a stronger-than-average holiday period, the DJIA is potentially setting up for a strong 2022 performance...

Uptrend 4

Many stock market traders have at least heard of the “Santa Claus Rally,” or the historical tendency for indices to rally in late December.

Interestingly, many traders aren’t familiar with the origins or exact definition of the famed Santa Claus Rally (SCR): According to Jeffery Hirsch’s Stock Trader’s Almanac, the official Santa Claus Rally specifically covers the last five trading days in December and the first two trading days in January. Over the last have century, the stock market has risen in roughly 75% of those periods, with an average gain of around 1.4%. Explanations for this seasonal tendency run the gamut from tax considerations to general optimism to pure coincidence, but it’s an interesting historical anomaly regardless.

The upshot of that long technical introduction is that today marks the last day of the SCR period, and as of writing, the Dow Jones Industrial Average is trading higher by 2.5% over the last seven trading days, marking a stronger-than-average holiday period and potentially setting the tone for a strong 2022 in the equity market.

In more traditional technical analysis parlance, today’s rally has also prompted a big breakout to record highs in the most widely-followed US index. As the chart below shows, the DJIA (Wall Street CFD) has broken above its previous highs in the 36,600 area, a level which also represents the 161.8% Fibonacci extension of the COVID collapse from Q1 2020:

cidjia01042022

Source: Tradingview, StoneX

Of course, any breakout can ultimately fail, so more conservative bulls may want to wait for a confirmed close or two above the key 36,600 level, but the price action to start the year is undoubtedly bullish. Looking ahead, the next level to watch will be near 37,200, which marks the confluence of 161.8% Fibonacci extensions (not shown) of the November and December dips, followed by round numbers like 38,000, 39,000, or even 40,000 if bulls can keep up the momentum through the first half of the year.

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.