Dow Jones Forecast: DJIA Hits 40K – Will We See a Bounce?

DJIA Key Points

All the major indices are trading lower, led by a -3% decline in the tech-heavy Nasdaq 100
Yield curve “uninversions” have historically been a harbinger of a potential recession, and we’re closer to that signal than at any point in the last 2 years.
DJIA has fallen back to retest the psychologically-significant $40K level, which could now provide support for the index moving forward.

Make no bones about it: Today has been a rough day for the US stock market.

All the major indices are trading lower, led by a -3% decline in the tech-heavy Nasdaq 100 in the wake of disappointing earnings from Tesla and (to a lesser extent) Alphabet. While soft earnings from Two of the so-called “Magnificent Seven” stocks is the proximate cause for the big selloff, we also saw a worse-than-expected 49.5 reading in the S&P Flash Manufacturing PMI survey out of the US, the lowest reading this year.

The steepening of the 10yr-2yr yield spread to its tightest level in over 2 years (14bps) is also playing a role in spooking investors, as yield curve “uninversions” have historically been a harbinger of a potential recession. Time will tell whether this cocktail of bearish indicators continues to weigh on indices, but as it stands, bears are holding the upper hand at the moment.

Dow Jones Industrial Average Technical Analysis – DJIA Daily Chart

Source: TradingView, StoneX

From a technical perspective, the DJIA has fallen back to retest the psychologically-significant $40K level as we go to press. This level, which served as key resistance in April and May, could now provide support for the index moving forward.

If we fail to see a bounce here, a deeper drop toward the 100-day MA and the rising trend line connecting the April, May, and June lows near $39K could be the next stop for the index.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

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