The Federal Reserve of the United States (FED) Meeting is upon us, and all eyes are on the stock market. This is an important week for the stock market for several reasons – Dow Jones included.
First, the big tech companies CEOs testify in front of the House Committee on accusations of monopoly. At any hint of repercussions, the stock market is the first one to react.
Second, we are still in full Q2 2020 earnings season. All eyes are on the Dow Jones and the S&P500 and how the earnings influence the price action.
Third, the Fed’s decision today comes one day after it announced the extension of its lending facility programs. With that in mind, the markets may not find any other reason to support the current elevated stock market levels.
Finally, the tech sector is credit with much of the stock market recovery. A failure to outperform at current levels (as hinted by sky-high valuations) should have repercussions on the Dow Jones and other U.S. indices.
What to Expect from the Fed?
The market does not have high expectations from the Fed today, although the pressure exists for the Fed to do more. With yesterday’s announcement, it may appear as the Fed already delivered.
The focus now shifts to the Fed’s tone. If it signals a transition to a more outcome-based forward guidance, the market will take it as something new. Or any hint of a possible adoption of front-end yield curve control, Japanese style, will move markets too.
Dow Jones Technical Picture
Dow Jones looks vulnerable ahead of the Fed decision. The technical picture favors a move lower, providing the price breaks the series of higher lows.
Such a break would invalidate the rising trend and open the road to a meaningful retracement to 50% or even 61.8% of the coronavirus rally. To make the most of it, wait and see if Dow Jones breaks below 25,400. Next, go short, having a stop-loss order at the previous higher swing. Finally, target 1:2 rr ratio for a retracement beyond the 50% level and into the 61.8% one.
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Dow Jones Price Forecast
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