The Dow Jones Industrial Average has been in a tight range in the past few weeks as investors worry about the rising cost of doing business and the inverted yield curve. The DJIA index is trading at $34,720, where it has been in the past few days. It has fallen by more than 6% from its year-to-date high, while the fear and greed index has moved to the neutral level.
Fear and greed index at neutral
This week, the Dow Jones, S&P 500, and Nasdaq 100 indexes will be in the spotlight as investors wait for the important bank earnings. Companies like Citigroup, Wells Fargo, and JP Morgan will publish their results. Analysts expect Citigroup to publish weak earnings because of its exposure to the Russian market. In addition, investment banks like JP Morgan and Goldman Sachs are expected to publish weak results as deposits fall for the first time in decades and investment bank revenue fall.
As investors worry about the inverted yield curve, the Dow Jones has also struggled. The situation where investors demand a better yield for short-term bonds than longer ones is usually a sign that a recession will happen in the near term. Indeed, a recent report by RBC Bank found that most analysts were expecting a recession in the coming 18 months.
However, Deutsche Bank sees it inverting in January 2023. Still, history suggests that American stocks tend to do well when the yield curve inverts. For example, a report by the Financial Times showed that the S&P 500 has returned a median of 9% in the 12 months after the yield curve inverts.
The WSJ identified several reasons why the Dow Jones and the broad US market will continue doing well in another report. The reasons included the fact that the US economy is still strong, real yields were still negative, and individual investors were buying the dip as new normal emerges. So, what next for the Dow Jones?
Dow Jones forecast
The four-hour chart shows that the Dow Jones has been in a strong bullish trend in the past few months. Along the way, the index has moved slightly above the 25-day and 15-day moving averages. It has also formed what looks like an inverted head and shoulders pattern. The stock is also slightly below the descending trendline shown in green.
Therefore, there is a likelihood that the DJIA will have a bullish breakout ahead of the earnings season. If this happens, the next key resistance will be at $36,000. A drop below the support at $34,185 will invalidate this view.
