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Can the Dow Make New Highs in the Fourth Quarter?

The Dow Jones Industrial Average has lagged the S&P 500 and Nasdaq in the rebound from the coronavirus lows. Can it finally make new highs as well?

The Nasdaq and the S&P 500 have made new all-time highs since the coronavirus selloff occurred, but the Dow Jones Industrial Average has not.

The index has recovered a bulk of its losses from the first-quarter selloff, but not all. It's still 5.5% below its all-time high set in February. In early September, the Dow was just 1.25% below its highs.

That lags both the Nasdaq and the S&P 500, which continue to trade above their pre-coronavirus highs.

On the plus side though, the Dow continues to trade better than small-cap stocks, with the Russell 2000 still more than 11% below its prior 2020 high.

As we enter the fourth quarter, investors are wondering if the Dow can find some momentum. While this quarter is likely to be bumpy with the presidential election in November and with the jobs market still reeling from Covid-19, bulls are optimistic.

Now the question is whether the Dow catch up to its peers and make new 2020 highs this quarter? Some prefer the SPDR Dow Jones Industrial Average ETF  (DIA) - Get Free Report. That's fine, but we're here to chart the blue-chip index. 

Trading the Dow Jones Industrial Average

Daily chart of the Dow Jones Industrial Average.

Daily chart of the Dow Jones Industrial Average.

It helps that the index dropped Exxon Mobil  (XOM) - Get Free Report, Raytheon  (RTX) - Get Free Report and Pfizer  (PFE) - Get Free Report, while adding Salesforce  (CRM) - Get Free Report, Honeywell  (HON) - Get Free Report and Amgen  (AMGN) - Get Free Report.

Given that these three additions have been trading well should give the Dow a boost. Although it would be pretty ironic if the leaders stumbled and the laggards outperformed.

The index's rally had been on a strong run from the March lows around 18,500 to its September high just more than 29,000. Since then though it’s been going through an orderly pullback.

The index did break below the 20-day and 50-day moving averages last month, but it held the 26,500 level. That was the gap-up mark from early August. Now the Dow has also reclaimed the key moving averages it lost last month.

The Dow has been quite responsive off the 50-day moving average for months now. As long as it holds above this level, I think we can see another charge higher.

Over the Sept. 16 high at 28,364 and the index could retest last month’s high at 29,199. That will ultimately have investors thinking about new highs and Dow 30,000.

However, a move below the 50-day moving average and the 78.6% retracement at 27,138 will put the September lows and the 200-day moving average back in focus. A close below these marks could get investors talking about Dow 25,000 instead. 

Honeywell and Salesforce are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells HON or CRM? Learn more now.