- The Dow Jones Index has dropped by 10.6% from its highest point this year.
- The Fear and Greed Index has moved to the extreme fear zone of 10.
- The index will likely continue falling and then bounce back later this year.
The Dow Jones Index has plunged into a technical correction after falling by 10.60% from its highest point in February to the current $45,165. It has sunk to its lowest level since September last year, leading to billions of dollars in losses. So, is it safe to buy the dip or sell the rip?
Dow Jones Index Moves Into a Correction as Risks Rise
The Dow Jones and other American indices like the S&P 500 and Nasdaq 100 have continued falling in the past few weeks, a trend that may continue in the foreseeable future as the Iranian war continues.
There are signs that the war will escalate in the coming weeks, with the US Pentagon considering launching a ground attack in the country. A major consideration is taking Kharg Island, where Iran exports most of its crude oil. The US may also attempt to go and take Iran’s enriched uranium.
A Kharg Island attack will make the oil market worse by pushing Iran to bomb the infrastructure of its neighboring countries, reducing the available oil in the market.
Meanwhile, the Houthis have entered the war by launching attacks towards Israel. They have also hinted that they will start attacking ships attempting to cross the Red Sea, further limiting the amount of available oil.
Therefore, there are signs that investors will start rotating from the stock market to short-term government bonds. Data shows that US bond yields have continued rising this year, with the 10-year and 2-year rising to 4.45% and 3.95%.
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Still, all hope is not lost for American stocks. Indeed, history shows that the stock market always rebounds after having a strong downward trend. For example, the Dow Jones and other indices like the Nasdaq 100 and S&P 500 rebounded in April last year after Trump announced his reciprocal tariffs.
Similarly, the index rebounded after Russia invaded Ukraine in 2022 and after the start of the COVID-19 pandemic. Indeed, the Fear and Greed Index has tumbled to the fear zone of 10. In most cases, American stocks tend to rebound whenever the gauge drops sharply. Most importantly, the Dow Jones will rebound since this war will not last forever.
Most companies in the Dow Jones Index have tumbled this year, with Salesforce, Microsoft, UnitedHealth, American Express, IBM, Nike, and Disney being the top laggards. All these companies have dropped by over 18% this year.
On the other hand, the top gainers are companies like Chevron, Verizon, Caterpillar, and Johnson & Johnson, which have jumped by over 14%.
Dow Jones Technical Analysis
The daily chart shows that the Dow Jones Index has slumped from a high of $50,500 in February to the current $45,165. It has tumbled to the 38.2% Fibonacci Retracement level.
The index has formed a bearish crossover as the 50-day and 100-day Exponential Moving Averages (EMA) crossed each other. Also, the Average Directional Index (ADX) has jumped to 36, a sign that the downtrend is gaining momentum.
The Relative Strength Index (RSI) has continued falling. Therefore, the Dow Jones will likely continue falling, potentially to the 50% Fibonacci Retracement level at $43,587. If this happens, the stock will likely rebound, especially when there are signs that the war is ending.
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