Our expectations suggest the return of the index’s decline during its upcoming trading.
The Dow Jones Industrial Average rose in its recent trading at the intraday levels, to achieve gains for the second session in a row, by 1.06%. It added about 371.65 points and settled at the end of trading at the level of 35,462.79. This happened after rising slightly in Monday’s trading by only 1.39 points.
In economic data on Tuesday, the US international trade deficit widened in December by 1.8% to $80.7 billion, marking the second largest monthly increase ever. Economists polled by the Wall Street Journal forecast a deficit of $82.9 billion. The deficit jumped 27% in 2021 to a record $859 billion, in large part because the recovering economy gave Americans more means to buy a lot of imports, even though they also paid higher prices due to higher inflation.
The National Federation of Independent Business (NFIB) said its small business optimism index fell 1.8 percentage points in January to 97.1 – an 11-month low. The NFIB said 61% of small businesses increased prices at the start of the new year, the highest rate since 1974.
Technically, the index’s recent rise puts it in direct confrontation with the resistance of its simple moving average for the previous 50 days, and in conjunction with the retest of a major bullish trend line in the medium term that the index had broken earlier, as shown in the attached chart for a (daily) period.
This comes at a time when negative signs start appearing from the relative strength indicators, especially after they reached overbought areas.
Therefore, our expectations suggest the return of the index’s decline during its upcoming trading, given its exposure to these negative pressures. It is under the control of a bearish corrective wave in the short term. If the resistance level 36,565.73 remains, it can target the pivotal support level 33,821.58. Although the index’s ability to get rid of the negative pressure of its simple moving average for the past 50 days, we have a positive view with upcoming trades.
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