The Dow Jones Industrial Average (DJIA) fell nearly 300 points on Tuesday, closing lower than the previous day. This drop raised worries that the excitement around AI technology may have created an imbalanced stock market with uncertain revenue strength. The index hit its lowest point in more than a week, reaching 46,840 before settling around 47,000. More than 300 stocks in the S&P 500 closed down, even though there were small gains on Monday due to a tech rally driven by a handful of leading stocks. Experts from Goldman Sachs and Morgan Stanley have warned that a pullback of 10-20% in the broader market could happen in the next one to two years. Currently, the Dow is just over 2% lower than its recent high of 48,000.

Challenges for Palantir Shares

Palantir’s shares dropped more than 7% on Tuesday, despite exceeding Wall Street’s earnings expectations. The company is struggling to achieve substantial revenue growth in its AI sectors. The ADP Employment Change figures for October will be released on Wednesday, but they often don’t match up closely with official US data. The DJIA is a price-weighted index made up of the 30 most traded stocks in the US. Its performance is affected by company earnings, macroeconomic data, interest rates, and inflation. Dow Theory provides a way to identify trends by comparing the DJIA to the Dow Jones Transportation Average. You can trade the DJIA through ETFs, futures, options, and mutual funds, giving you multiple ways to engage with the index. There are various strategies available, including the SPDR Dow Jones Industrial Average ETF, futures contracts, and mutual funds. The Dow Jones has now pulled back over 2% from its record high near 48,000 just last week. The recent decline in AI-related stocks reveals a troubling trend: the rally was supported by only a few major names. This narrow leadership can signal a weaker overall market.

Concerns for the Broader Market

Recently, the Dow Jones Transportation Average did not confirm the Industrial’s new high, which signals bearish trends according to Dow Theory. Additionally, the CBOE Volatility Index (VIX) has increased to 17.5, up from the low teens it held throughout October 2025, indicating rising fear. This suggests that traders expect larger price swings soon. With warnings from major bank CEOs about a possible 10-20% correction, it may be wise to consider protective strategies. Purchasing put options on index ETFs like the SPDR Dow Jones Industrial Average ETF (DIA) can provide a safety net against a major decline. This strategy allows for protection while limiting the maximum loss to the premium paid. For those unsure about the market direction but anticipating volatility, using options to trade could be an effective strategy. With the important Nonfarm Payrolls report delayed due to the government shutdown, all eyes will be on tomorrow’s ADP employment figures. Any major surprises in this data could lead to sharp market movements, making straddles or strangles potentially profitable options. We should also examine individual stocks that appear overvalued, such as Palantir, which dropped significantly despite a favorable earnings report. The market is now questioning its extremely high valuation, a sentiment that could extend to other popular AI stocks. Selling call spreads on such shares might be an effective way to take advantage of potential declines or sideways movements. Create your live VT Markets account and start trading now.

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