The benchmark indices of the US stock market, including the Dow Jones Index, opened lower on Tuesday. The dynamic situation in the Middle East is adding to investor concerns as the dollar strength remains resilient. The Dow Jones Industrial Average often shows an inverse correlation to the DXY index.
After experiencing a positive sentiment on Monday, the DJI is down 104 points today. While the buyers have stepped in and turned the candle green, the index remains 0.35% down from its previous close. However, it still stands above the 33,800 points support and the 200 DMA which is a sign of strength.
The US economy remains resilient despite constant rate hikes by the US Federal Reserve. The latest retail sales data showed that consumer spending remains strong as retail sales increased 0.7% in September 2023. In addition, the core retail sales also experienced an uptick of 0.6%.
The increase in car sales and the spending on outdoor dining strengthened the belief that economic growth accelerated in the third quarter of 2023. This outcome is not what the stock market investors want as this would mean a longer than expected era of FEDtightening. The retail sales data seems to be the primary reason behind today’s weakness in the Dow Jones Index.
As I have repeatedly mentioned in my previous articles, the most critical level for the Dow Jones Industrial Average is the 33,800 level. A breakdown below this level will make the Dow Jones Index outlook very bearish with a possibility of a retest of 32,600 points level.
The presence of 200 DMA around the 33,800 level makes it even more significant. Many traders consider a breakdown below the key moving average a beginning of a strong downtrend. Therefore, I expect the bears to step in below this level. However, if the correction in bond yields and the DXY index deepens, a retest of 34,245 from the downside is still possible.
This post was last modified on Oct 17, 2023, 15:21 BST 15:21