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Dow Jones Index: What to Expect as Trade Talks Advance

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The Dow Jones Industrial Average (DJIA)(DIA) continued its uptrend and hit a new all-time high of $28,146 on Tuesday. Optimism about a partial trade deal with China lifted the markets this week. The Dow Jones Index and the S&P 500 (SPY) have risen more than 20% and 25%, respectively, so far this year. The Dow Jones Futures indicate a flattish opening today.

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China trade war: Is Phase 1 close?

The impending Phase 1 trade deal is the most important indicator for the stock markets. Amid the trade truce’s “on-again-off-again” status, President Trump said that the US and China are close to Phase 1 of the trade deal. He said that negotiators from the two sides are working on a resolution.

So far, the IP (intellectual property) rights issue has been one of the major obstacles in the trade talks. According to a Bloomberg article on Monday, China said that it will raise penalties and lower the threshold for criminal punishments for IP rights violations. China has been stressing due to demands to roll back the tariffs. Meanwhile, the US wants to protect its IP rights. China’s actions on the IP rights ahead of Phase 1 of the trade deal might be a positive sign.

However, the Hong Kong Human Rights and Democracy Act of 2019 could be a hitch in ongoing trade talks. The Senate passed the bill last week. The bill supports Hong Kong protestors. China lashed out and condemned the US for interfering in international matters.

China and the US have been involved in trade talks for months. As a result, Phase 1 of the trade deal might indicate when a concrete solution to the trade war could be reached.

How the Dow Jones Index played out

The Dow Jones and the S&P 500 indexes are trading at a record high. However, investors are still cautious. Recently, the indexes reached milestones. However, the levels are only marginally higher from the previous highs hit early this year.

This year, Apple (AAPL) and Microsoft (MSFT) fueled the rally in the Dow Jones Index. Apple stock has risen about 70%, while Microsoft has risen almost 50% YTD. The tech-heavy Invesco Trust (QQQ) ETF has risen almost 35% YTD.

Boeing (BA), the top constituent of the Dow Jones Index, has rallied 19% in 2019. The stock has shown a decent recovery after weaker-than-expected earnings weighed on it last month.

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Dow Jones Index is overbought

The recent strength has pushed the Dow Jones Industrial Average Index into the “overbought” zone. The Dow Jones’s 14-day RSI (relative strength index) was 75 as of Tuesday. An RSI above 70 indicates that the stock or index is in the “overbought” zone, while an RSI below 30 indicates that it’s in the “oversold” zone. RSI levels at extremes suggest a probable reversal in the direction. QQQ is also trading in the “overbought” zone with its RSI at 76.

However, the Dow Jones Index looks strong based on the simple moving average levels. The index is trading at $28,122, which is almost 4% and 6% above its 50-day and 200-day moving average levels, respectively. The fair premium above the key support levels indicates strength in the index. The index’s 50-day level close to $27,144 might act as a support in the short term.

While stock markets have been strong so far this year, analysts don’t look that optimistic next year. To learn more, read S&P 500 at Record Highs: Not Much Upside in 2020.

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