Dow Jones futures analysis as the Fear and Greed Index drops to 16

The Dow Jones Index retreated by over 100 points in the futures market as it erased some of the gains made on Monday when it jumped by 630 points.

It was trading at $46,100, down by over 8% below its highest point this year.

US bond yields are rising as the Fear and Greed Index falls

The Dow Jones Index has retreated and is nearing a correction as investors remain fearful amid the ongoing Iran war.

Data shows that the Fear and Greed Index has moved to the extreme fear zone of 16. 

All the sub-indices, including the market momentum, stock price strength, stock price breadth, put and call options, safe haven demand, and junk bond demand have all moved to the extreme fear zone. 

Fear and Greed Index chart | Source: CNN

Investors are fearful that the impact of the ongoing Iran war on the economy will be dire, with energy prices remaining at an elevated level.

Also, investors are also questioning Donald Trump's statement on Iran talks, which helped to drive the stock market higher on Monday.

The most likely scenario is where the war continues for longer than Trump expects as Iran and Israel will have a say on when the war will end. Israel hopes for a long war that will devastate the country.

At the same time, Iran will aim to shut the Strait of Hormuz for a long time in a bid to push oil prices higher and punish Donald Trump.

The Dow Jones Index has also remained under pressure as US bond yields have remained at an elevated level, with the longer-dated ones rising amid the ongoing public debt surge.

Data shows that the ten-year yield rose to 4.367%, while the 30-year yield rose to 4.95%.

Therefore, the most likely scenario is where the Federal Reserve will continue holding interest rates steady between 3.50% and 3.75%.

Data compiled by Polymarket and Kalshi shows that most traders believe that the bank will not cut rates this year.

Some analysts are also predicting that the bank may decide to hike interest rates this year.

The challenge, however, is that the Federal Reserve is contending with the ongoing stagflation situation in the United States as the labor market has stagnated.

A recent report showed that the unemployment rate rose to 4.4% in February, while the economy shed over 92,000 jobs.

Most Dow Jones Index companies have remained on edge since the war started late last month.

The top laggards in the index were companies like Nike, Boeing, Sherwin-Williams, Home Depot, and American Express. All these stocks have tumbled by over 12% this year.

Dow Jones Index technical analysis 

Dow Jones Index chart | Source: TradingView 

The daily timeframe chart shows that the Dow Jones Index has retreated by over nearly 9% from its highest point this year. It has dropped below the Supertrend indicator.

The index has dropped below the 23.6% Fibonacci Retracement level at $47,225.

It has also slumped below the 50-day and 200-day Exponential Moving Averages (EMA).

Therefore, the index will likely resume the downward trend, and possibly move to the 50% Fibonacci Retracement level at $43,565.

The downtrend will likely continue as long as the war continues.