From the January 01, 2010 issue of Futures Magazine • Subscribe!

Dow Jones futures: Split decision

Alan Bush, senior financial futures analyst at Archer Financial Services, expects the Dow Jones futures to continue their current upward trend well into 2010. Bush cites strong earnings numbers and the Fed’s adherence to low interest rates to support his view.

Independent trader and consultant John Rawlins, on the other hand, is bearish. Rawlins says the Dow could reach as high as 10,700 by year end — though he suspects the high is already in — but come 2010 it is due for a sharp downward correction. Rawlins expects the Dow to correct at least 50% of the upward move from the March lows by spring.

Oddly enough they both are closely following the dollar for clues. Bush says the dollar rebound following the November employment report was overdone and says, “The rest of the world will be [raising interest rates] more quickly than the Fed.”

The Fed isn’t expected to budge until mid 2010 and Bush adds, “It isn’t the first rate increase that reverses the market, it is the last one.”

By the time that happens, Bush expects rate hikes to be a positive sign of economic growth. “We are just going to go higher.”

Rawlins expect the dollar to strengthen and the negative correlation between equities and the dollar to continue. His technical models indicate the Dow is in the last leg up of the move and will be ready to correct by New Years.

Bush says the Dow futures could reach between the 10,600 to 10,700 area in January and sees strong support at the recent congestion level around 10,200.

Rawlins says the longs that are in the market are nervous longs and expects them to flee at the first sign of weakness. “I would be taking my profits for the year and saying thank you,” Rawlins says.

Richard Regan, founder of the Pro Trading Course, says the Dow will continue to be negatively correlated with the dollar. “If we see a dollar rally, the Dow will sell off,” Regan says.

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