- Summary:
- The Dow Jones is rallying ahead of the NFP data. Here are the reasons why the index is set to rally according to the fear and greed index
The Dow Jones is up by more than 1% as traders remain optimistic about the US economy, a potential stimulus package, and the nonfarm employment data. The index is trading at $25,297, which is the highest it has been since June 24.
Stimulus package
The first reason why the Dow Jones is up by more than 1% is that investors are looking ahead to the next stimulus package. Yesterday, Democrats in the House passed a $1.5 trillion infrastructure package. Their goal is to stimulate the economy by creating jobs and boosting the country’s infrastructure.
However, while Donald Trump has been supportive of infrastructure spending, most Republicans are cautious. They believe that it will sharply increase US national debt, which has jumped to more than $26 trillion.
Still, as the coronavirus pandemic in the United States gets out of hand, there is a possibility that politicians will pass another bill.
At the same time, the Dow Jones is rising because of a potential vaccine that is being tested by Pfizer. But while the vaccine is a good thing, experts believe that it will take a longer period before it goes public.
US economy improving
The Dow Jones because of the recent upbeat economic data. Yesterday, data from ISM showed that the manufacturing PMI rose to above 52 in June, in a sign that the economy is improving. Last month, data showed that the economy added more than 2.5 million jobs, retail sales improved, and the housing sector made a made some significant strides.
In the next hour, we will receive the nonfarm payrolls numbers. As I wrote earlier today, analysts expect that the economy added more than 3 million jobs. Therefore, if these numbers are better-than-expected, there is a possibility that the Dow Jones will continue rising.
But some are cautious about the economy and US stocks. Consider Jim Cramer, the respected CNBC host. In a technical analysis yesterday, he identified potential red flags for the S&P 500. While the report was not focused on the Dow Jones, the two tend to move in unison.
Fear and Greed index
In the past, we have talked about the fear and greed index, which is an important tool that was developed by CNN Money. The tool calculates the amount of fear and greed among market participants. In my last update, the index was pointing to fear as stocks declined. Today, the index is at neutral as shown below. A move above 50 will be a positive thing for the Dow Jones and US stocks because it will signal that investors are ready to buy more stocks.
Dow Jones technical analysis
The Dow Jones is trading at an important level. On the daily chart, it is trading above the ascending black trendline. It is also above the 200-day and 100-day exponential moving average. The RSI has also started to move upwards and is slightly below the important level of 60. Therefore, I expect the index to continue rallying as bulls attempt to test the next resistance level at $27,000.
On the flip side, a move below the 100-day EMA at $25,341 will invalidate this prediction. This price is also along the ascending trendline.
