Dow Jones Analysis as the VIX Index Steadies Ahead of FOMC

The Dow Jones index continued its bearish trend on Wednesday as American bond yields soared ahead of the FOMC decision. It crashed to a low of $30,500, which was the lowest level since September 14. It has crashed by 10% from the highest level on August 17. The index has dropped by 16% this year while the VIX index has risen by more than 54% this year. VIX has risen by 41% from the lowest level in August.

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NAS100

NAS100 (11325)

In Profit

STOP

SELL

TP1

11478

TP2

11338

US bond yields soar

The Dow Jones, Nasdaq 100, Russell 2000, and S&P 500 indices have been in a strong bearish trend in the past few days. This decline happened as the market waited for the upcoming interest rate decision by the Federal Reserve.

The Fed, which will conclude its two-day meeting on Wednesday, is expected to continue hiking interest since inflation remains at an uncomfortable high. Historically, stocks tend to react unfavourably to high-interest rates. Indeed, Ray Dalio, who runs the biggest hedge fund in the world, warned that stocks would crater by another 20% if the Fed hiked rates to 4.5%. 

High-interest rates tend to hurt American stocks. For one, holders of America’s government bonds are having a better year than holders of stocks. The 2-year government bond yield has jumped to the highest point since 2008. 

The Dow Jones has also been hit by the strong US dollar. Historically, the index has an inverse relationship with the US dollar since many constituent companies have large operations abroad. For example, while Apple did not hike iPhone 14 prices, their prices have surged internationally because of the strong USD.

Dow Jones forecast

The daily chart shows that the Dow Jones index has been in a downward trend recently. It has managed to move below the important support level at $31,885, which was the highest level on June 28. At the same time, it has dropped below the 25-day and 50-day moving averages while the Awesome Oscillator has moved below the neutral level.

Therefore, the outlook of the Dow Jones is bearish as sellers target the next key support level at $29,657. A move above the resistance level at $31,400 will invalidate the bearish view.

Dow Jones