Last week, we saw a bit of a Christmas rally in the Dow Jones, although some of the gains got erased in the final couple of days. The market is all-in on the soft-landing trade with the Fed expected to cut interest rates soon, the labour market coming into better balance and the inflation rate on track to reach the 2% target by the end of the year. It’s hard for the bears to fight the current positive sentiment, especially without significant bearish catalysts, but such crowded trades are generally liable to fast unwinding in case the prevailing narrative proves to be wrong, so the bulls should be extra careful going forward.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones continues to print new all-time highs amid positive risk sentiment and the support from the recent Fed’s pivot. From a risk management perspective, the buyers would be better off waiting for a pullback into the most recent swing low around the 37070 level where they will also find the red 21 moving average for confluence.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the trendline has been defining the strong uptrend since last October. Last week though, the price broke below the trendline, and we can also notice that the latest leg higher diverged with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. This might be a confirmation that a deeper pullback into the 37070 level could be in the cards.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current price action and the divergence with the MACD. The sellers should pile in around these levels with a defined risk above the high to target a drop into the 37070 level. The buyers, on the other hand, will likely lean on the 37070 level with a defined risk below it to position for a rally into another all-time high.
Upcoming Events
This week is full of key economic data which will culminate with the NFP report on Friday. We begin tomorrow with the ISM Manufacturing PMI and Job Openings and given the recent trends there could be room for disappointment. Later in the day, we will get the release of the FOMC Minutes, but it’s not expected to be market-moving given that it’s three weeks old data. On Thursday, we will have another slate of US labour market data with the release of the US ADP and Jobless Claims figures. Finally, on Friday, we conclude the week with the NFP report and the ISM Services PMI.
