Investors Calling the Market’s Bluff? The Dow Signals A Return to the Upside

Summary:
• The Dow Jones Index had the worst performance YTD on the weekly chart last week, but there's reason to believe that a reversal is imminent.

The Dow Jones Index registered the largest weekly loss last week, as concerns over a potential US recession came into play once again. The Index closed the week at -2.93 last week, with Friday’s losses exceeding 1 percent after the US Non-Farm Payrolls figures printed out lower-than-expected. Nonetheless, the pre-market sessions on Monday signaled a potential recovery in the intervening period to the Fed interest rate decision-making.

US NFP figures came in at 142k in August, missing Wall Street analysts’ forecast of 164k jobs. However, the unemployment rate dropped by 0.1 percent to 4.2 percent. That said, a second successive miss by NFP readings point to a not-so-healthy economy.

Mixed signals from the US economy have seen optimists point out that skepticism over the US economy is not based on concrete evidence, but a FUD sentiment that could push a recession to be a self-fulfilling prophesy. Meanwhile, top stocks in the Dow Jones Index were up in the pre-market session, with Microsoft at +1.18%, Goldman Sachs at +0.3%, Home Depot gaining 0.4% Caterpillar at +0.1% and Apple up by 0.3%.

The premarket performance point points to potential oversold conditions last week, which could trigger a reversal this week as investors eye Fed interest cut decision. The CME FedWatch tool reported that traders expect a 75% chance of a 25 basis points cut at the time of this writing, up from 70 percent a week ago.

Dow Jones today

A stay above the 40,400 mark will indicate that the Dow Jones Index ( INDEXDJX: .DJI) will likely continue the upside, with the initial resistance likely to be at 40,636. However, a stronger bullish momentum could be able to clear that barrier and potentially send the index further up to test 40,914.

On the downside, a move below 40,400 points will signal a takeover by the sellers. In that case, the first support could come at 40,090. However, extended control by the bears could breach that support, thereby invalidating the upside narrative and potentially sending the index lower to test 39,800.