Dow Jones Technical Analysis: Gets Off Its Negative Pressure – 14 September 2022
If inflation shows signs of slowing, investors can take it as a clear signal that the Fed will back off on interest rate increases, which tends to be bad news for equities.
The upbeat atmosphere from the past few days and the momentum continued into Monday, with hopes of an easing in inflation in important data to be released later on Tuesday. This indicated that the inflation peak has been reached, as the CPI for August is expected to decline by 0.1 7% month-on-month, while expected to remain 8.1% from a year ago. The decline is driven by weak Chinese producer prices, which generally explains part of the inflation in the US. Regarding rent data, if it is weak enough, or significantly better yet less than expected, stocks are likely to continue rising this week as well.
If inflation shows signs of slowing, investors can take it as a clear signal that the Fed will back off on interest rate increases, which tends to be bad news for equities. The Federal Reserve is widely expected to raise the benchmark interest rate by 75 basis points, or three-quarters of a percentage point, for the third time in a row this month. Before 2022 the last increase of 75 basis points or higher came in the 1990s, but there is some hope that the weak inflation reading will lead to a half point rise instead.
Technically, the index moves along a corrective bullish trend line in the short term, as shown in the attached chart for a period (daily). The index has been supported by the influx of positive signals on the relative strength indicators, after reaching earlier areas of oversold areas, to succeed in its recent rise to surpass its average resistance. The simple moving average for the previous 50 days, to get rid of its negative pressure, which gives it the opportunity to achieve more rises.
Therefore, our expectations indicate that the index is likely to rise further during its upcoming trading. This will happen if it is confirmed that it will breach the current 32,272.65 resistance level, to target the 33,248.60 resistance level.
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