Last Friday, the Dow Jones rallied despite the ISM Manufacturing PMI missing expectations and falling further into contraction. The market is still trading based on rate cuts expectations as the trigger for the rally was a neutral Fed Chair Powell speech where he didn't push back against the market's pricing. The market seems to be all-in on the soft-landing trade and ignoring the weakening economic data, especially on the labour market side. The sentiment is also getting a bit bubbly right when things might really go south, so the buyers might want to be extra cautious going forward.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones broke decisively through the cycle high and extended the rally into the 36265 level. This looks more and more like a FOMO play with the index distant just 2% from the all-time high. The market is not even offering decent pullbacks with the price just going up parabolically. These are not healthy trends, especially in this part of the cycle.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is overstretched to the upside as depicted by the price 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. This would fit with a pullback into the recently broken cycle high at 35684 where the buyers might pile in with a defined risk below the level to position for another rally and target the all-time high.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the breakout to the upside of the channel and the cycle high triggered a strong increase in the bullish momentum with the buyers piling in aggressively to target the all-time high. From a risk management perspective, buying around these levels doesn’t make much sense from both a fundamental and technical point of view, so waiting for a decent pullback should be better than chasing this insane rally.
Upcoming Events
This week we will see lots of US labour market data culminating with the NFP release on Friday. Tomorrow, we have the ISM Services PMI and the US Job Openings reports. On Wednesday, we will get the US ADP data. On Thursday, it will be the time for the US Jobless Claims figures, while on Friday we conclude the week with the NFP report.
