The last week was incredible for the Dow Jones with the index rallying for five consecutive trading days. The bulk of the rally came after the FOMC rate decision where the Fed left interest rates unchanged and Fed Chair Powell delivered less hawkish than expected remarks. The Dow Jones then extended the gains into the weekend after the NFP report missed forecasts and the ISM Services PMI came lower than expected.
One may think that the stock market sees a soft landing and the fall in Treasury yields is a good thing. Unfortunately, Treasury yields fell likely because the bond market sees more weakness to come in the next few months given the softening in the labour market. So, the rally we’ve seen out of the disappointing data is likely to be misplaced and the market might correct that soon.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones erased all the losses of the past two weeks and rallied back into the key resistance around the 34000 level where we can also find the trendline and the 61.8% Fibonacci retracement level for confluence. This is where the sellers are likely to step in with a defined risk above the high to position for a drop into the lows.
We can also notice that the price is overstretched as depicted by the distance from the blue 8 moving average. In such instances, we can generally see a pullback into the moving average or some consolidation before the next move.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the bearish setup with the key resistance highlighted by the blue box. We can also notice that the price is overstretched even on this timeframe. The buyers will need a break above the resistance zone to invalidate the bearish setup but from a risk management perspective, they will be better off to wait for a pullback instead of chasing the rally at these elevated levels.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a pretty good support around the trendline where we can find the red 21 moving average and the 38.2% Fibonacci retracement level for confluence. That’s where the buyers are likely to step in with a defined risk below the trendline to position for a break above the resistance. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets and target a drop into the lows.
Upcoming Events
This week is pretty empty on the data front with just the US Jobless Claims on Thursday and the University of Michigan Consumer Sentiment on Friday. The market is likely to focus on the past week events and will be eager to see the US Jobless Claims on Thursday given the recent weakness in the labour market data.
