Dow Jones Index Has Recoiled. Here are 4 Reasons Why

Summary:
• The Dow Jones index pulled back as investors waited for the upcoming US earnings season and inflation data.

The Dow Jones index pulled back as investors waited for the upcoming US earnings season and inflation data. It also declined as the fear and greed index dropped to 27. The index is trading at $31,173, which is about 15.83% below the highest level in 2022. The Nasdaq 100, Russell 2000, and S&P 500 indices have also dropped sharply. 

What is moving the DJIA?

There are several key catalysts moving the Dow Jones index. First, investors are pricing in another jumbo rate hike this month. This hike will be supported by the recent strong American jobs data and the expected high inflation numbers scheduled for Wednesday. Economists expect the data to show that the overall inflation jumped to 8.8%. Some analysts expect that inflation surged to 9%, which will be the highest level in over 4 decades. 

Second, the Dow Jones has crashed because of the extremely strong US dollar. The dollar index has surged to over $106 as the currency has soared against most currencies like the euro and Japanese yen. This is an important part since most Dow Jones constituents like Microsoft and Apple have large operations abroad. As such, these firms will likely report large fx impacts in the upcoming results. 

Third, the Dow Jones index has dropped as investors wait for the upcoming earnings season that starts this week. The key companies to watch will be banks like Morgan Stanley, JP Morgan, and Wells Fargo. UnitedHealth, the biggest insurance company in the world, will also publish. Other key firms are Blackrock, the biggest asset manager globally, and PepsiCo. Analysts expect that these firms will report weak earnings.

Finally, the fear and greed index remains in the fear zone. Historically, the Dow index usually struggles when investors are fearful about the market. 

Dow Jones forecast

The daily chart shows that the Dow Jones index has been in a strong bearish trend in the past few months. Along the way, the index formed a descending channel that is shown in blue. The current price is between this channel. It has also moved slightly below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is pointing downwards. 

Therefore, with the index struggling to move above the moving averages, there is a likelihood that it will continue falling towards the earnings season. The next key support level to watch will be at $30,500. A move above the resistance level at $31,500 will invalidate the bearish view.