The Dow Jones Industrial Average (DJI) dropped 400 points in December, hitting a key level at 47,600. This dip comes after a bumpy November and ends a seven-month winning streak, with only a slight gain of 0.2% in November. Stocks related to AI are facing worries over their valuations. Some companies, like Nvidia and Synopsys, saw a 1% rise, while others, such as Broadcom and Super Micro Computer, fell by 2%. Bitcoin plunged over 5%, dropping below 90,000, and this marks three months of decline.

Predictions for Federal Reserve Rate Cuts

Expectations for interest rate cuts from the Federal Reserve are mixed. The market sees a 90% chance of a rate cut in December but also an 88% chance that any decision might be delayed until January. The Dow Jones is made up of 30 popular US stocks and its value is calculated by adding up stock prices and dividing by 0.152. Several factors influence the Dow Jones, including company performance, economic data, and Federal Reserve interest rates. Dow Theory, created by Charles Dow, is used to observe market trends using the DJIA and the Transportation Average. You can trade the DJIA through ETFs, futures, options, and mutual funds. This article highlights the need to understand risks and does not give personalized investment advice. FXStreet and the author stress that this piece is not about investment recommendations. With the Dow Jones struggling at the 47,600 resistance level, caution is advised. Historically, December has been a strong month for stocks, with the S&P 500 averaging a 1.3% gain since 1950. However, the market has already rallied for seven months straight, suggesting that using put options on the SPDR Dow Jones ETF (DIA) could be a wise strategy in the weeks ahead. The AI sector appears to be losing momentum, as profit-taking affects stocks like Broadcom and Super Micro Computer. While Nvidia’s investment in Synopsis gave a small boost, the overall weakness hints that the rally might be losing steam. Now is a good time to pick stocks carefully, possibly using options for individual stock plays instead of betting on the whole sector.

Bitcoin’s Downward Trend

Bitcoin’s recent plunge below 90,000 confirms a strong downward trend that’s been developing since October. With a drop of over 17% just in November, the momentum is clearly downward, similar to the sharp declines seen in 2021 and 2022. Traders in derivatives might consider shorting Bitcoin futures or buying put options on crypto-related ETFs. The main concern remains the uncertainty around the Federal Reserve’s interest rate decision on December 10. Conflicting predictions about the possibility of a cut next week versus holding off until January are adding tension to the market. This is reflected in the CBOE Volatility Index (VIX), which has risen back above 18, up from about 14 in early November. This uncertainty from the Fed makes trading volatility itself a potentially appealing strategy. Before the announcement on December 10, we might look into buying straddles or strangles on major indices. These positions could benefit from significant market moves in either direction once the Fed’s direction is clarified. Create your live VT Markets account and start trading now.

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