The Dow Jones index (DJIA) formed a doji pattern as the fear and greed index moved from the greed area. It pulled back to a high of $33,100, the highest point since Monday. Other major indices like the S&P 500 and Nasdaq 100 also pulled back slightly.
Fear and greed index pulls back
The fear and greed index is one of the most accurate sentiment indicators in the financial market. It aggregates several indices, like the stock price strength, which looks at NYSE stocks reaching their 52-week highs. This sub-index is still in the extreme greed area.
The safe-haven demand has moved to the greed area while the junk bond demand is at the extreme fear area. Other sub-indices like the VIX, put-and-call options, and market momentum have moved to the neutral point.
The fear and greed index is stuck at 51, which is lower than the greed area of 60 where it was last year. This is a sign that investors are getting jittery about the market. A likely reason is the rising interest rates and bond yields. The ten-year bond yield has risen to 4% while the two-year has risen to 5%.
Therefore, there are rising risks that the Federal Reserve will maintain its hawkish tone in the coming months. Analysts expect that the bank will hike by 0.25% in its March meeting followed by two more 0.25% hikes until June.
Historically, stocks tend to underperform in periods of high-interest rates, which explains why the Dow Jones and S&P 500 indices have pulled back in the past few months. The view is that the hopes of tapering that investors were anticipating in January have not materialized.
Dow Jones index forecast
Dow chart by TradingView
The Dow Jones index has been under pressure after it formed a triple-top pattern around $34,345 in December, January, and February. In price action analysis, this pattern is usually a bearish sign. It has now retested the neckline of this pattern at $32,575, which was the lowest point on December 20th.
The index has also moved below the 50-day and 100-day exponential moving averages. It has also moved slightly above the 50% Fibonacci Retracement level. Therefore, the Dow Jones will likely rise slightly and retest the key resistance point at $33,500. A drop below the support level at $32,575 will signal that bears have prevailed, opening it to a crash to $32,000.
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