Dow Jones Plunge Continues as Fear & Greed Index Signals Fear

Summary:

Dow Jones has plunged fear as investors flee from riskier stocks. The fear & greed index is signaling fear among investors.

Dow Jones has fallen further by 1.99% as the market reacts to the US consumer-price inflation numbers. April’s CPI came in at 08% MoM, which is the highest since 2009. Even with the removal of food and energy from the equation, core CPI rose by 0.9% MoM. The numbers largely surpassed the economists’ estimates. S&P 500 and Nasdaq also dropped by 2.15% and 2.67% respectively. The focus is now on Thursday’s US PPI and Friday’s US retail sales data.

At the same time, the fear & greed index is at 37 on the fear side of the spectrum. This is a decline from the previous session’s neutral of 49. It is also lower than the neutral level of 54 a month ago. However, junk bond demand and stock price strength still signal investors’ extreme greed. On the other hand, safe-haven demand, market volatility, and the put and call options are indicating extreme fear in the market. Notably, investors are choosing bonds over riskier stocks.

Technical Outlook

Dow Jones extended the week’s losses as a reaction to the ongoing inflationary pressures. On Wednesday, the index closed at 33,587.7 points, down by 1.99%. Since the beginning of the week, it has plunged by about 4.25%. On an hourly chart, it is trading below the 14 and 28-day exponential moving averages.

Dow Jones closed Wednesday’s session at the resistance-turn-support level of 33,600. I expect it to seesaw around that level while the bulls gather enough momentum to push it to 34,000 points. On the flip side, higher-than-expected US PPI numbers may cause the index to fall further to 33,200 points.