Dow Jones To Breach 40,000 Again? – Dow Jones Analysis & Prediction

Key Points

• Dow Jones reaches a milestone, then retreats.
• Busy back-end of the week.
• VIX ticks higher. 
• Dow Jones reversal or profit taking?

Market Overview

Monday 20th May was a big win for the Wall Street bulls as the Dow Jones reached a milestone high of 40,000 for the first time. This was after the price fell short of this level a few weeks earlier.

Softer data and the growing optimism around Federal Reserve interest rate cuts this year have fuelled another terrific start for the three leading indices: NASDAQ100, S&P500, and Dow Jones. When writing this article, the Dow Jones 30 is 2.9% up on the year, which was as high as 6.5% when at the 40,000 mark. 

A Busy End To The Week

It has been a sluggish start to the week, with bank holidays and US Memorial Day halting much of the volatility traders have become accustomed to. However, this is likely to change as of today’s US session opening bell. 

Today, the Richmond Fed Manufacturing Index will warm up to the high-impact news events due out towards the end of the week. The figures have indicated contraction since October 2023, so it shouldn’t be surprising if it does again.

The main events will undoubtedly be Thursday’s US Gross Domestic Product (GDP) and Friday’s Core PCE Price Index. As mentioned in Monday’s EURUSD article, US GDP feels set up for an upside surprise, which would likely send the Dow Jones higher. However, a weaker Core PCE Price Index figure on Friday would likely have the most impact on indices, and this could be the catalyst to send the Dow Jones back up to 40,000.

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VIX Ticks Higher

The Volatility Index (VIX) has been declining since the April spike but has fallen into a familiar support zone once again. The 12-13 level has acted as support numerous times in the last year and is doing so now!

A spike higher in the VIX from here could keep the pressure on the recent sell-off in the Dow Jones, and there is a risk traders could see a move up to 15 in the VIX in the coming days.

Dow Jones Reversal or Profit Taking?

Many traders are wondering whether this sell-off in the Dow Jones over the past week is simply profit-taking within a bullish market or a bearish reversal. Although there is evidence for both, with the failure to convincingly create new high suggestions reversal, the overriding evidence suggests this was just profit-taking.

Many traders would have taken profits at 40,000, as it was such a milestone figure. As you can see, the price barely breached it before selling off. However, if you study the market structure, it is still very bullish.

The moment this market turns bearish, it will be if there is a breakdown below the daily order block at 37,500 after that textbook reaction. Two potential support areas in mind are 38,650, the most recent high that was broken, or the liquidity area at 37,700 for those looking for a deeper retracement.