Last Friday, the Dow Jones broke a key resistance zone despite a much weaker than expected ISM Manufacturing PMI. The market probably took it as good news because it reduces the chances of the Fed eventually being forced to resume tightening. In fact, the US Dollar and the Treasury yields fell across the board giving the stock market a boost. The path of least resistance remains to the upside until we start to see a deterioration in growth or the labour market cracks.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones price action has formed a rising wedge with the price diverging with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the pullbacks should resolve around the bottom trendline where we can expect the buyers to step in to target new highs. The sellers, on the other hand, will want to see the price breaking lower to confirm the reversal and target the 37128 level.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price recently bounced on the red 21 moving average as the buyers leant on the moving average to position for a rally into new highs. If the price fails to sustain the bullish momentum and falls into the trendline, the buyers will find the 50% Fibonacci retracement level for extra confluence. A break below the bottom trendline though would invalidate the bullish setup and likely trigger a selloff into the 37128 level.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price broke through the resistance zone around the 39000 level last Friday. This is where we can expect the buyers to step in on a retest as they will also find the red 21 moving average for confluence. The sellers, on the other hand, will want to see the price breaking lower to position for a drop into the bottom trendline and target a break below it with a better risk to reward setup.
Upcoming Events
This week we have lots of important events on the agenda with the release of the US labour market data and the Fed Chair Powell testifying to Congress. We begin tomorrow with the US ISM Services PMI. On Wednesday, we have the US ADP, the US Job Openings and the Fed Chair Powell speaking. On Thursday, we get the latest US Jobless Claims figures, while on Friday we conclude the week with the US NFP report.
