Yesterday, the Dow Jones opened lower and finished the day negative following another hot US CPI report. This has pushed rate cuts expectations further out with the market now pricing in less rate cuts than the Fed’s dot plot. The Treasury yields skyrocketed across the board putting some pressure on the stock market. Now the market might even think that the economy is still doing great, and the Fed is not going to hike anyway, but there are now good reasons to see a bigger correction to the downside, so the bulls should be extra careful.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones has been trading inside a rising channel and continued to diverge with the MACD for a long time. This is generally a sign of weakening momentum often followed by pullbacks or reversals. Recently, we got a breakout which opened the door for a bigger correction into the 37128 level. The price bounced on the first support level at 38464 following the goldilocks NFP, but fell back to it following another hot CPI report.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price bounced on the first support level but got rejected by the downward trendline and the blue 8 moving average before breaking below the support following the CPI release. The sellers will now have even more conviction to sell the rallies and we can expect a drop into the second level at 38043 next. The buyers, on the other hand, will want to see the price breaking above the trendline to invalidate the bearish setup and position for a rally back into the highs.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the downward trendline where we can also find the confluence of the red 21 moving average and the 38.2% Fibonacci retracement level. This is where we can expect the sellers to step in with a defined risk above the trendline to position for a continuation of the downtrend with a better risk to reward ratio. The buyers, on the other hand, will want to see the price breaking higher to start targeting new highs.
Upcoming Events
Today we get the US PPI report and the latest US Jobless Claims figures. Tomorrow, we conclude the week with the University of Michigan Consumer Sentiment survey.
