The Dow Jones Industrial Average slipped after touching its highest level since 14 September before the New York open, and traded near 51,800 versus Monday’s close, while the S&P 500 was little changed and the NASDAQ Composite tested record highs. The move tracked a rotation out of financials and into technology tied to interest in artificial intelligence agents, with Meta Platforms among the beneficiaries after JPMorgan’s analysts raised their rating earlier in September. Because the DJIA is price-weighted, a $1 move in any of its 30 constituents shifts the index by about 6 points, so a $10 drop subtracts roughly 60 points whether the share is $1,000 or $100; by contrast, the S&P 500 and NASDAQ are market-cap weighted. Goldman Sachs, priced above $900, has more index heft than JPMorgan at under $400 even though JPMorgan’s market value is more than three times larger, and Meta is not in the Dow.
Crude oil fell for a fifth straight session, with Brent hitting its lowest level since 8 September on reports Iran had offered to reopen the Strait of Hormuz within seven days, contingent on the US lifting its blockade of Iranian ports; the report has not been independently confirmed. The Fed lifted its main reference rate by 0.25 percentage points to 3.75–4.00% on 16 September, its first rise since July 2023, and JPMorgan raised its prime rate to 7.00% a day later; the next Fed decision is due on 28 October, six days before the 3 November midterms. In technical terms, resistance sits just above 52,100 and then a Tuesday peak just above 52,400, support is centred just under 51,800 then just under 51,500 and near 51,200, while Stoch RSI is near 22 and a bearish bias is cited below 52,100, invalidated on a daily close above 52,200.
Market Rotation and Implications for Derivative Traders
We are seeing a clear split in the market where money is fleeing traditional financial institutions and moving heavily into technology stocks. Because the price-weighted Dow Jones Industrial Average is heavily influenced by expensive bank stocks like Goldman Sachs, it is lagging far behind the tech-heavy Nasdaq. Derivative traders should exploit this divergence by buying short-term put options on the Dow while maintaining long positions in technology-focused indexes.
From a technical standpoint, we recommend maintaining a bearish bias on the Dow as long as it remains below the key resistance level of 52,100. The daily Stochastic RSI momentum gauge has fallen for two weeks and sits near 22, indicating strong downward momentum. Our immediate downside targets for these put contracts are the September 18 low near 51,500 and the September 16 low near 51,200.
Volatility, Crude Oil, and Preparing for the Post-Midterm Rally
Volatility is expected to rise as we approach the Federal Reserve’s rate decision on October 28 and the midterm elections on November 3. Historically, the CBOE Volatility Index (VIX) rises by an average of 10% to 15% in the two months leading up to midterm elections due to political uncertainty. To capitalize on this, we should consider buying out-of-the-money straddles on the Dow to profit from sharp, unexpected price swings.
Falling crude oil prices are also dragging down Chevron, the Dow’s only energy stock, on reports of a potential post-election deal with Iran. Brent crude recently touched its lowest point since September 8, which continues to pressure energy-related derivatives. We can hedge this energy weakness by selling short-dated call options on energy sector ETFs.
However, we must remember that midterm election years often see stock markets bottom out in October before starting a massive year-end rally. Since 1950, the stock market has risen in the 12 months following every single midterm election, averaging a return of about 15%. This historical trend suggests we should prepare to transition from short-term puts to long-term call options as October draws to a close.
