Dow Jones rally pauses ahead of Fed as fear and greed index rises

The Dow Jones declined by more than 0.85% as investors waited for the Federal Reserve interest rate decision. Investors are also concerned about the growing geopolitical tensions and a potential upswing in coronavirus cases after weeks of protests. The fear and greed index, which was developed by CNN Money has ticked higher and is now at 68, which is a sign that greed has returned to the market.

Fear and Greed index rise

The Dow Jones index declined as the fear and greed index pointed to greed in the market. At 68, the index is at its highest level since February this year. It also means that the Dow Jones can continue rallying because the index is not extremely greed. Similarly, the Relative Strength Index (RSI) is at 72, which is overbought but not extremely overbought. This is a signal that the index has more room to run.

Still, the Dow Jones has several tests it needs to pass, including more stimulus, rising coronavirus cases, and the FOMC decision tomorrow.

More stimulus hurdles

Part of the reason why the Dow Jones index has been rallying is because of hopes of a new stimulus package from congress. In a statement yesterday, the White House said that it would seek another stimulus package from congress. He has suggested a new payroll tax cut. While the figure has not been released, analysts expect the new stimulus to be worth more than $1 trillion.

However, the idea faces two main challenges. First, Republicans have been reluctant to approve another stimulus because of the ballooning debt. Second, with the economy improving, the congress may lack interest in giving more money.

Traders will be watching for the Fed interest rate decision tomorrow for an idea about more stimulus from the Fed.

Dow Jones drops as traders fear a spike in coronavirus

The biggest risk for the Dow Jones is a spike of coronavirus cases because of the recent protests. Doctors believe that these protests led to more cases because of the shouting and gathering of people. These results will start coming out in the next two weeks. In a statement, Dr. Robert Redfield told CNN that:

“I do think there is a potential, unfortunately, for this to be a seeding event especially in metropolitan areas where there has been significant transmission.”

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Dow Jones technical outlook

On the daily chart, the Dow Jones index has found some resistance along the 78.2% Fibonacci retracement level. It is also above the 50-day and 100-day exponential moving averages. While the index has declined today, it is still in an upward trend, which means that the trend will continue as bulls attempt to retest the YTD high of $29,681.

On the flip side, a move below the 61.8% Fibonacci retracement level of $25,324 will invalidate this prediction because it will send a signal that there are more bears in the market.

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