The Technical Setup Speaks to More Upside for Stocks Into Year End

Netskope Inc. signage during the company’s initial public offering at the Nasdaq in New York. (Michael Nagle/Bloomberg)

Key Points

• The S&P 500’s 21-day exponential moving average (EMA) has served as support since April 25.
• The Dow Jones Industrial Average found support at its 21-day EMA on Sept. 25, targeting 52,000 by early 2026.
• The Nasdaq Composite briefly dipped below its 21-day EMA in late August and early September before resuming its rally.

Momentum has clearly favored bulls since the early April lows. Support levels remain intact as momentum continues to track the prevailing trend.

One popular tool traders use to gauge ongoing strength is the 21-day exponential moving average (EMA). As a shorter-term indicator, it places greater emphasis on recent prices—unlike the simple moving average (SMA), which assigns equal weight to all sessions in the period.

On the daily S&P 500 chart below, notice how the orange line (the 21-day EMA) has acted as solid support since the index recaptured it on April 25. A move below this line, currently near 6570, could trigger a swift decline toward the 50-day SMA around 6450. Such a pullback would present an attractive risk/reward opportunity heading into year end.

The 21-day exponential moving average has provided support.

Not surprisingly, the Dow Jones Industrial Average also found support along its rising 21-day EMA on Sept. 25, as it has several times over the past few months. Although it briefly dipped below this line on Aug. 1, it quickly rebounded off the rising 50-day SMA. Notably, if it touches the 50-day SMA it would also retest the bullish inverse head and shoulders breakout above the very round 45,000 level.

This means the Dow could pull back roughly 1000 points from current levels and still remain comfortably within an uptrend. In fact, such a healthy correction could provide an attractive entry point ahead of a potential year-end rally. I continue to target 52,000 for this benchmark in early 2026.

A pullback in Dow Industrials stocks could provide an attractive entry point.

The tech-heavy Nasdaq Composite Index recently tested its rising 21-day EMA, briefly dipping below it in late August and early September before quickly reclaiming the line and resuming its rally. Again, the 21-day serves as a key gauge of momentum health. Bulls want to see it act as a springboard for a brief pause before continuing higher, ideally keeping the line above the 50-day SMA. Across all three major averages, little concern is warranted unless the 50-day SMA is broken. The Nasdaq also deserves credit for solid follow-through after its cup-with-handle breakout above the very round 20,000 level.

The Nasdaq chart shows solid follow-through from the cup-with-handle breakout.

Write to Doug Busch at douglas.busch@barrons.com