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Brief: Dow Jones Forms H&S Pattern; Fear & Greed Index Spikes to 85

US stocks soared close to record highs as stimulus, vaccine, and weaker dollar boosted sentiment. The Dow Jones jumped by more than 0.65% while the S&P 500 and Nasdaq 100 index rose by more than 1%. At the same time, there are signs that investors are getting relatively greedy. The closely-watched fear and greed index has moved to the extreme greed zone of 85.

Fear and Greed Index

The Dow Jones and its counterparts rose as hopes of a slim stimulus deal rose. In a statement yesterday, a bipartisan team of senators led by Mark Warner and Susan Collins unveiled a deal that will provide more than $900 billion to the economy. While that deal is smaller than the previous Democratic proposal of $2 trillion, it is viewed as a good starting point.

Still, there are concerns about whether Mitch McConnel will agree to table the bill. This has possibly led to a slight reversal in the futures market where the Dow Jones, S&P 500 and Nasdaq are down by 0.30%.

US stocks are also rising because of the rising wave of corporate consolidation. Yesterday, Salesforce said that it would acquire Slack, a messaging tool used by millions every day. This deal came a day after S&P Global unveiled a $44 billion to acquire IHS Markit. Other recent deals include the acquisitions of Xilinx and Arm Holdings by AMD and Nvidia, respectively.

Other reasons for the record-breaking rally of the Dow Jones and other indices are the new vaccines and the recent appointments by Joe Biden.

However, with the fear and greed index soaring, there are concerns about how high the rally could go on. To be fair, while the index is at the extreme greed level, it has more room to run before it reaches 100.

Dow Jones technical outlook

On the four-hour chart, we see that the Dow Jones is trading at $29,678 in the futures market. This is lower than last month’s all-time high of $30,209. The price upward trend has been supported by the ascending trendline that is shown in red. It has also moved below the 50-day and 25-day exponential moving averages.

Notably, the index has formed a head & shoulders pattern and is currently close to its neckline. Therefore, while the overall trend of the Dow Jones is bullish, there is also a possibility of sustained weakness of the index.

Dow Jones head & shoulder pattern

Dow Jones