Dow Jones Index Breaks Below 42k Points, Multiple Red Flags Raised

Summary:
• After trading sideways in recent days, the Dow Jones Index has broken below the 42k points mark. A sign of things to come?

The Dow Jones Index declined on Monday with investors concerned about delays in fed interest rate cuts. The Index was down by 1 percent at the time of writing, with yields on benchmark 10-year US treasury bonds rising past the 4 percent mark for the first time in two months.

Meanwhile, Federal Open Market Committee (FOMC) member Neel Kashkari opted to give a measured assessement on the potential Fed Interest decision going forward. That did little to tame the growing belief that another rate cut is unlikely to happen next month.

The US economy gave a strong show in September, with higher-than-expected Non-Farm Payrolls numbers and a reduced unemployment rate. That has diminished chances of another interest rate cut in the near-term, which exerts downward pressure on stocks. Away from the US, there is growing concern that escalating violence in the Middle East could have a contagion effect across the world.

As the world marked the first anniversary since the October 7,2023 attack on Israel by Hamas a new problem has emerged-the prospect of Iran’s direct involvement in the war has risen significantly. That has raised the stakes with the likelihood of blown-out widescale regional war with far-reaching global repercussions.

All but one of the top ten stocks in the Dow Jones Index (INDEXDJX: .DJI) by weight traded in the negative territory at the time of writing. The top three, UnitedHealth Group, Golman Sachs and Microsoft were down by 0.9 percent, 0.2 percent and 1.4 percent respectively.

Dow Jones Index forecast

The bears are currently in control as reflected by the Dow Jones Index momentum. The downside will likely prevail if resistance persists at 41,975. With the sellers in control, the first support will likely be at 41,801. However, extended bearishness could enable a breah below that mark to test 41,710.

Conversely, moving above 41,975 will signal the onset of bullish control. In that case, initial resistance could come at 42,103, but a stronger bulllsihness could break above that mark to invalidate the bearish momentum and test 42,222.