The Dow Jones Index has pulled back in the past few days, moving from the year-to-date high of $48,416 to the current $47,457. It has remained about 30% above its lowest level this year. So, is it safe to buy the DIA ETF dip?
Why the Dow Jones Index has retreated
The Dow Jones and the DIA ETF have pulled back in the past few days as concerns about the Federal Reserve remained. One of these concerns is that the Federal Reserve will not cut interest rates in the coming meeting as some analysts were expecting.
Data compiled by Polymarket shows that odds of a rate cut have dropped sharply in the past few days. These odds have dropped to 53% from the year-to-date high of 95%.
Some Federal Reserve officials have warned that it was unwise to cut rates aggressively now that inflation remains at an elevated level. Their argument is that inflation has remained above the Federal Reserve’s target of 2.0% in the last four years, and more cuts will lead to higher prices.
The Dow Jones Index also retreated as investors sold the news of the end of the government shutdown. Donald Trump signed the bill on Thursday, ending the longest shutdown in history.
The Dow Jones and other indices rose ahead of the end of the government shutdown. Now, the index is falling as investors sell the news.
Fears of an AI bubble ahead of Nvidia earnings
The Dow Jones Index is pulling back as investors remain concerned about the artificial intelligence (AI) industry. One concern is that companies in the index are highly overvalued as the boom continues.
At the same time, there are concerns that the ongoing AI investments will not generate returns in the near term. A good example of this is OpenAI, a company expected to make an annualized revenue of $20 billion this year. Despite making huge losses, the company has made deals worth over $1.6 trillion. Analysts doubt whether the company will achieve a positive return on investment (ROI) anytime soon.
The next important catalyst for the Dow Jones Index will be the upcoming Nvidia earnings. Analysts expect the report to show that its revenue rose by 56% to $55 billion in the third quarter. Its annual revenue is expected to be $207 billion, up by about 58% from last year.
The other Dow Jones constituents that will publish their results next week are Walmart and Home Depot, the two biggest companies in the index.
Dow Jones Index forecast
The daily timeframe chart shows that the Dow Jones Index has been in a strong bull run in the past few months. It has formed an ascending channel and is slightly below its upper side.
The Relative Strength Index (RSI) and the MACD indicators have moved sideways. It has remained above the 100-day Exponential Moving Average (EMA).
Therefore, the index will likely resume the downtrend as sellers target the 100-day moving average level at $45,637. A move above this month’s high of $48,415 will invalidate the bearish outlook.
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