The Dow Jones Index held steady this week and is hovering near its all-time high as investors refocus on the upcoming Federal Reserve interest rate decision and key earnings by Adobe, Oracle, and Costco.
It was trading at $48,000, its highest level since November 13, and is slowly forming a risky pattern. Will the rally continue or will the blue-chip index pull back?
Dow Jones Index is slowly forming a bearish setup
The daily timeframe chart shows that the Dow Jones Index has been in a strong uptrend in the past few months, moving from a low of $36,612 to $48,000 today, a 30% surge from its lowest level in April this year.
The index has remained above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls remain in control today. It has also moved above the Ichimoku cloud and the Supertrend indicators.
The risk, however, is that the stock has formed a bearish divergence pattern as the Relative Strength Index (RSI) and the MACD indicators have continued moving downwards.
At the same time, the index is slowly forming a double-top pattern at $48,375 and a neckline at $45,705. A double-top is one of the most common bearish reversal patterns in technical analysis.
Therefore, there is a risk that the index will have a pullback in the coming days or weeks. This bearish outlook will remain intact as long as it remains below the double-top point at $48,375.
On the flip side, a move above the double-top pattern level will point to more gains, potentially to the next key resistance level at $50,000 in 2025.
Federal Reserve and key earnings by Oracle and Adobe are key catalysts
The Dow Jones Index has a major bullish catalyst in that the Federal Reserve will conclude its two-day meeting on Wednesday next week and deliver its interest rate decision.
Most economists believe that the bank will deliver the third interest rate cut of the year, with these odds rising to over 90% on Polymarket and Kalshi. These rising odds explain why the yield of the 10-year government bonds has dropped to 4.1% from the year-to-date high of 4.805%.
Most importantly, the hope is that the Fed will deliver more cuts in the coming year as Donald Trump is set to replace Jerome Powell as the Federal Reserve chair, possibly with Kevin Hassett. Hassett, who serves at the White House, is more aligned with the president on rate cuts.
The other notable catalyst for the Dow Jones Index next week will be financial results from top companies Toll Brothers, AutoZone, Oracle, Adobe, Synopsys, Broadcom, Costco, and Lululemon.
While these companies are not part of the Dow Jones Index, their earnings will have an impact on the stock market. The most important one will be Oracle, the software giant that has become a major player in the artificial intelligence industry.
Oracle’s recent results had a direct impact on the Dow Jones and other indices as it published strong numbers and backlog. Adobe stock price will also be in the spotlight as it continues to lag behind in the growing AI industry.
The Dow Jones Index will also react to the upcoming macro numbers, including the JOLTS job cuts and inflation report.
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