DOW JONES OUTLOOK:
- U.S. stocks give up earlier gains and slide in the final hour of trading, a sign that investors’ sentiment remains fragile
- The Nasdaq 100 erases its morning advance and falls 1.34% to 14,846, its lowest level since October 14th.
- The Dow Jones retreats 0.89% and falls below its 200-day SMA, a bearish sign for price action
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After rallying in the morning trade, U.S. stocks staged a 180-degree turn around and finished the day sharply lower, a sign that sentiment continues to be fragile on Wall Street and dip buyers remain reluctant to swoop in to scoop up beaten down shares in the face of monetary policy uncertainty and a slowing economy.
When it was all said and done, the S&P 500 plunged 1.10% to 4,482, erasing its 1.2% earlier advance and falling to its lowest level since October 18th. For its part, the Dow Jones retreated 0.89% to 34,715 and closed below its 200-day SMA, a negative signal for the blue-chip index. The Nasdaq 100, after outperforming most of the day, wiped out all gains and sunk1.34% to 14,846, amplifying the recent correction that had sparked an ~11% pullback from the November high.
Elsewhere, the Russell 2000 plummeted 1.88% to 2,024 and broke a key support near the 2,060 area, deepening the death cross formation that developed yesterday on the daily chart, a sign that the medium-term bias for the small and mid-cap index is turning materially more bearish.
Looking ahead, earnings season may to be the main driver of equity price action, with results from industrial giants such as General Electric (GE) and 3M (MMM) closely watched for clues on the economic outlook and the impact of inflation on margins. However, investors’ attention may shift away from corporate financial statements and momentarily turn to the FOMC decision next Wednesday. While no change in monetary policy is expected, the central may offer insight into the tightening cycle, including the timing of the liftoff and the start of the balance sheet runoff.
Focusing on the Dow Jones, the blue-chip index remains better-positioned to outperform the other major Wall Street averages over the short and medium term amid rising rates and dwindling appetite for long-duration/unprofitable stocks, but the bullish scenario rests on the assumption that the recovery will strengthen once the omicron wave subsides. To understand how the economy is evolving, traders need to keep a close eye on incoming economic data, though statistics from December and January will be obscured by the pandemic and give an inaccurate picture of the rebound. To separate the noise from underlying trend, we will have to wait for February and March data, which should be more encouraging on account of improving mobility levels.
DOW JONES TECHNICAL ANALYSIS
The Dow Jones has fallen more than 5% this year amid broad-based stock market weakness. After the recent pullback, the index has broken below its 200-day simple moving average and is now sitting near a key floor in the 34,665 area. If sellers manage to invalidate this support, traders should prepare for a possible decline towards 34,400 and then 34,000, the December low. On the flip side, if we witness a rebound, resistance appears near the 35,000 psychological level, but a move above this barrier can attract buyers and set the stage for a climb towards 35,500 over the near term.
DOW JONES TECHNICAL CHART
Dow Jones Chart prepared in TradingView
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—Written by Diego Colman, Contributor