The Dow Jones Industrial Average rose around 167 points, or 0.3%, on Monday to about 51,750, even as the S&P 500 fell 0.3% and the Nasdaq Composite dropped 1.1%. Index futures sank to roughly 51,500 overnight before the cash session lifted the Dow towards a fresh high near 51,900, only for it to give back about 140 points into the close. The Stochastic Relative Strength Index ended around 49.5, leaving momentum indicators in the middle of their range.
Selling pressure centred on mega-cap technology: Alphabet slid 6%, while Amazon lost 4% and Meta fell 3%, and SpaceX declined a further 8% for a third straight drop; Microsoft, a Dow component, dipped 2%. In commodities, Brent fell more than 3% towards $77 and WTI slipped over 2% to near $74 after Qatar and Pakistan cited a 60-day roadmap, and after the Treasury cleared Iranian crude oil sales for the same window. Attention then shifts to Thursday at 12:30 GMT, when May PCE and the third estimate of first-quarter GDP are due; core PCE is forecast at 3.4% YoY versus 3.3%, with a monthly rate of about 0.3% against 0.2%, while headline PCE is seen at 4% YoY. Technical levels referenced were resistance near 51,900 and 52,000, with support at 51,650 and 51,500.
Dow Gains Driven By Rotation, Not Conviction
We view Monday’s gain in the Dow as deceptive, driven more by a nervous rotation out of technology than by any real buying conviction. The Nasdaq 100 has seen over $50 billion in fund outflows in the last two weeks, its fastest pace of withdrawals since late 2024. This capital is seeking temporary shelter in the Dow, not making a long-term home.
The market’s failure to hold its high near 51,900 is a significant bearish signal for us. We are treating this 51,900 to 52,000 zone as a key resistance level, which is reinforced by a large buildup of open interest in call options at corresponding levels in DIA, the Dow’s ETF. This suggests we should use any strength this week to initiate bearish positions, such as buying puts or selling call spreads.
Market Risks Ahead Of Key Inflation Data
All attention should be on the PCE inflation report this Thursday. With last week’s CPI data showing headline inflation unexpectedly climbing to 3.9%, we see little chance of a soft PCE print that would deter a hawkish Federal Reserve. Services inflation, which the Fed watches closely, has remained stubbornly above 4.5% for three consecutive quarters.
A hot PCE number would likely cause the entire market to reprice for higher interest rates, and the Dow’s recent strength would evaporate quickly. Implied volatility is already rising, with the VIX climbing from 14 to 18 over the last ten trading days. We expect this trend to continue, making options more expensive as the PCE release approaches.
The recent drop in crude oil prices should be viewed with skepticism. While cheaper energy helps some Dow components, the potential for a US-Iran deal is tenuous at best. The volatility index for crude oil options remains elevated near 30, signaling that traders are betting on more price swings, not a sustained move lower.
