Dow Jones Index is in Trouble – Dr. Doom & Ray Dalio Warn

Summary:
• The Dow Jones index strong meltdown continued its strong meltdown as concerns about monetary policy continued. What next for the Dow?

The Dow Jones index strong meltdown continued its strong meltdown as concerns about monetary policy continued. It crashed to $30,200, which was the lowest level since July 14 of this year. It has crashed by more than 12% from its highest level in August. The fear and greed index has fallen to 31.

Dr. Doom and Ray Dalio warnings

The Dow Jones crashed hard after the Fed launched another bazooka in its battle against inflation. As was widely expected, the Federal Reserve hiked interest rates by 0.75%. This means that the bank has hiked interest rates by 300 basis points this year. It also warned that the bank will continue hiking interest rates in the coming months. 

As a result, analysts at Goldman Sachs raised their forward guidance about rate hikes. They expect that the bank will hike by 75 basis points in November to 50 basis points in December. As a result, they expect that rates will peak at between 4.5% to 4.75%. Barclays analysts believe that the Fed has another 150 basis point hikes to go.

As such, this brings rates to a danger zone that Ray Dalio warned about recently. In a statement, Dalio said that a rate hike to 4% will lead to 20% drop in equities. He is not alone. In a statement, Nouriel Roubini, popularly known as Dr. Doom said that stocks could crash by 40%, citing high-interest rates. Therefore, a 40% drop of the Dow Jones means that it could crash to about $18,000.

The fear and greed index has been in a strong bearish trend as worries about the economy continued. Market momentum, put and call options, and junk bond demand have moved to extreme fear. Meanwhile, safe haven demand and market volatility have moved to the fear level.

Dow Jones forecast

The daily chart shows that the Dow Jones index has been in a strong bearish trend in the past few months. It has crashed below the 25-day and 50-day moving averages while the Awesome Oscillator moved below the neutral point. It has also moved below the important support at $30,345, which was the lowest level on July 13. 

Therefore, there is a likelihood that the index will keep falling as sellers target the next key support level at $29,500. A move above the resistance at $31,000 will invalidate the bearish view.