The Dow Jones Index has transitioned into a sideways trend after consolidating over the past few days, currently trading around the 36,062 points level.
This mirrors similar price actions observed in the S&P500 and Nasdaq100 indices, both of which underwent the same movement about two or three weeks ago consecutively.
While some interpret this consolidation as a signal for a prelude to a surge toward new record levels, my perspective leans towards an expectation of a significant near-to-medium-term downturn.
The Dow Jones Index is trading only 0.8% away from its December 2021 closing record and 2% below its all-time high, following a rapid climb of nearly 12% in the past five weeks. The recent swift ascent triggered the Relative Strength Index (RSI) on the daily charts to surpass the overbought threshold, suggesting extreme investor greed. However, I believe this is the less likely scenario.
It appears that the price has adopted a different behavioral pattern this time. The Dow Jones Index has been gradually declining since the beginning of the week, in contrast to the S&P500 and Nasdaq100 indices, which have continued their upward trend and maintained stability near recent peaks.
Similarly, the movement in the currency market holds equal significance, with the dollar index rising since late November—a factor typically associated with market declines. This has manifested in the price movements of other stock indices. However, the Dow Jones Index defied this simple logic by initially rising before consolidating and beginning its descent during Thursday’s trading.
This type of price action reminds me of active short liquidation. We witnessed similar harsh reversals in gold a few days ago, where the price peaked from December 1st to 4th before starting its descent.
We also observed the opposite situation when the price reached a selling peak for several days, then surged strongly in April 2020.
From my perspective, this indicates that, given the current price levels, it is now more comfortable for the trend to shift downward in the Dow Jones Index.
I assume the index is likely to decrease by around 5% rather than experiencing a similar upward movement. Buying stocks with price expectations based on the assumption that the Federal Reserve will cut interest rates by 150 basis points in the next year, alongside strong final demand and company profits, does not seem easy or logical.