The Dow Jones Industrial Average (DJIA) fell below 41,250 as the US and China prepare for preliminary trade talks in Switzerland. A definitive deal is expected to take months, according to Chinese delegates.

US President Donald Trump has suggested reducing Chinese goods tariffs from 145% to 80%. Both levels are similarly restrictive on trade, affecting the US economy’s reliance on cheap goods.

The Federal Reserve Policy

The Federal Reserve maintained interest rates in May, with officials avoiding direct monetary policy discussions. Traders anticipate another rate cut in July, though odds for rate holds are rising, now at 40%.

The Dow Jones is sliding after failing to surpass the 200-day Exponential Moving Average near 41,600. Despite this, it has rebounded over 12.5% from its April low below 37,000.

Assembled from 30 major US stocks, the DJIA is price-weighted. Criticised for limited representation, it differs from indices like the S&P 500.

The Dow Theory assesses market trends by comparing DJIA and DJTA directions. It involves identifying three phases: accumulation, public participation, and distribution.

Trading The DJIA

Trading the DJIA involves ETFs, futures, and options, allowing diverse exposure. Caution is advised due to associated market risks and uncertainties.

The Dow’s retreat beneath the 41,250 threshold comes as both Washington and Beijing prepare for early-stage talks in Switzerland. Though this sounds promising, Chinese officials have already indicated that a concrete accord will take time—possibly stretching into months. That’s not speculation; it reflects the methodical, drawn-out nature of trade frameworks. During these initial meetings, there’s every chance negotiators will focus on groundwork rather than breakthroughs.

Tariffs remain the elephant in the room. The current proposition, discussed publicly by Trump, to reduce tariffs from 145% to 80%, might seem like a generosity on paper. But in practical terms, both figures remain exceptionally punitive. Tariffs at either level limit access to low-cost imports, which in turn squeezes businesses dependent on overseas components. Ultimately, we are staring at a potential bottleneck in consumption, at a time when supply chains are still regaining equilibrium.

Markets dislike mysteries—particularly around interest rates. The Federal Reserve opted for no change in May and chose to sidestep detailed forward guidance. Until last week, a rate cut in July still appeared somewhat expected by the market. But the recent shift in sentiment, pushing the probability of a rate hold up to 40%, is telling. It means we’re seeing renewed confidence—or perhaps uncertainty is receding slightly after months of relentless speculation over inflation data.

We can’t ignore how the Dow failed to sustain momentum above the 200-day Exponential Moving Average. That technical level, nestled around 41,600, has become more than a simple reference point. With prices backing away after testing it, we’re seeing sellers regain traction. Still, the bounce off April’s low just below 37,000 indicates a meaningful recovery—over 12.5% stronger in just a few weeks. It’s volatile, yes, but not directionless.

This index, made of 30 heavyweight American stocks, remains price-weighted. That means companies with higher share prices have more influence over its movement, regardless of their actual scale. It’s one reason why some question its utility compared with broader indices such as the S&P 500. This isn’t a flaw, just something to be wary of when analysing relative strengths.

Dow Theory gives us a longer-term view by comparing the Dow Jones Industrial Average with its counterpart, the Transportation Average. Agreement between both tends to reinforce the trend’s reliability. These trends usually develop in three stages: we see initial smart money inflows (accumulation), then broader buying by the public (participation), and eventually topping out as institutional investors begin to exit (distribution). Based on current moves, it feels like we’re perhaps drifting between stage two and three—but confirmation will come from broader signals, particularly the Transports.

For those operating within derivatives markets, the Dow remains accessible via various instruments such as ETFs, index futures, and options. Flexibility here allows for hedging or outright speculation depending on risk tolerance. However, exposure also heightens vulnerability to whipsaws caused by unexpected political headlines or central bank hints. We’ve emphasised the need to avoid overleveraging into resistance areas, especially when global negotiations add a fog of headline risk. Keep positions responsive, particularly with implied volatility readings indicating uncertainty is far from resolved.

Pay attention to levels that have recently acted as both ceilings and floors. When technicals meet macro stories—such as trade policy and monetary direction—the reaction can overshoot or break down with little warning.

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