Dow Jones: Downside Risks Persist Ahead Of The Fed
BlackBull Markets | Sep 18, 2022 06:05PM ET
The US headline CPI data released last week surprised the market with a smaller drop than expected. As such, there is a higher chance of a 75-basis-point rate hike in the upcoming September FOMC meeting. The US stock market reacted with a major sell-off last week, signaling that the summer rally has overstayed its welcome.
The Dow Jones Industrial Average plunged by 1,300 points or 4.2% last week. The S&P 500 dropped by 5.2%, while the NASDAQ declined by 6.0%. The interest rate decision from the Fed due this Wednesday (UTC -4) will be a significant event for US markets this week. The market is currently pricing in an 85% chance of a 75bps rate hike and a 15% chance of a 100bps hike.
The current price action for the Dow Jones, combined with the Schaff Trend Cycle indicator , indicates that the downside strength is still present and may continue to stick around. The Schaff Trend Cycle sits far below the 25 levels at 7.6.
However, this indicator’s current condition may also indicate that the Dow Jones may be oversold. In such a case, we might expect the index to perform a reversal and retest the 31,200 level before continuing the downtrend. Traders looking for a counter-trend trade might want to watch and wait for the Schaff Trend Cycle to close above the 25 levels.
With the upcoming FOMC meeting and the expectation of a 75bps or greater rate hike, we may expect a reaction to the downside during the day, and the index could hit the 30,000-support area. Breaking below the 30,000-demand zone will open up the 29,500 to 29,000 targets.
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