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Dow Jones Technical Analysis: Draining Overbought Levels

We expect the index to return to the upside during its upcoming trading.

The Dow Jones Industrial Average declined during its recent trading at the intraday levels, to record sharp losses in its last sessions, by -1.29%, to lose the index towards -448.96 points. It settled at the end of trading at the level of 34,358.51, after rising by 0.74% in Tuesday’s trading.

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23 of the index’s 30 components declined, led by Home Depot Inc. in percentage terms. by -3.85%, and Salesforce.com Inc. by -3.25%, followed by Cisco Systems Inc. By -3.01%.

Yesterday was the second anniversary of losses in the US stock market due to the emergence of the COVID-19 pandemic in early 2020. Since this day two years ago, the Dow Jones Industrial Average has risen 87.22% from its low of 18,591.93 hit on the same day in 2020. This performance and from that bottom to date represents the best two-year trader performance since 1987.

The market was hit again in 2022 due to concerns about inflation, and more recently due to Russia’s invasion of Ukraine. Analysts say another bear market appears unlikely. They say the current rise in inflation is worrisome but not the fatal threat to the economy as the pandemic did in early 2020.

There were many factors for a rally in stocks starting in 2020, the Federal Reserve quickly slashed the benchmark lending rate to 0%, Congress approved trillions of dollars of fiscal stimulus for households and small businesses, and the result was that Americans were awash with cash when the economy reopened.

New concerns emerged in 2022 with the highest rate of inflation seen in 40 years, which forced the Federal Reserve to unveil plans recently to raise interest rates in a row over the next two years, as the central bank pledged to tame inflation, even if it means slowing economic growth significantly big.

Technically, the index with its recent decline is trying to gain positive momentum and discharge some of its clear overbought by the relative strength indicators. This is especially with the start of negative signals from them, to give it strength that may help it recover and rise again. It can be based on the support of its simple moving average for the previous 50 days, in attempts to breach the ceiling of that corrective bearish channel that limit his previous short-term trades.

Therefore, we expect the index to return to the upside during its upcoming trading, as long as the main support 34,000 remains intact, to target the resistance level 35,631.

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