This first half of the week was highlighted by big misses in the US economic data like Job Openings, Consumer Confidence and ADP. These might be the first signs that a recession is indeed on the horizon as the labour market is starting to show weakness. In fact, the market is no longer seeing the Fed hiking interest rates as the September and November probabilities dropped further and the rate cut expectations were brought forward. Nonetheless, despite the worrying data, the Dow Jones rallied strongly as if nothing bad happened at all. There could be different reasons that range from a relief rally due to dovish expectations and lower yields or the market interpreting the softer labour market readings as good news for inflation going forward. Until we see more data, the technicals will help in managing the risk and in identifying the most probable market directions.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones has rallied all the way back to the previous support now turned resistance. This is a very strong and quick move which was not supported by the data, so it’s possible that it was just technical, and the bearish bias has not changed. Nonetheless, the price is now trading within the resistance zone where we can also find the red 21 moving average for confluence. This is where the sellers are likely to pile in with a defined risk above the level and target the 33805 support.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a divergence with the MACD before the quick turnaround as this is generally a sign of weakening momentum often followed by pullbacks or reversals. In fact, we got a big turnaround into the resistance and if the price continues higher, then the trend will switch back to bullish, and the buyers will target the all-time high.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence right at the resistance level. This might be a signal for the sellers that the pullback is ending, and another big bearish move is about to unfold. If the price breaks below the upward trendline, the sellers should pile in even more aggressively as the probabilities for another big drop would increase. The last line of defence for the buyers will be the support area around the 34700 level as a break below it will give the sellers complete control.
Upcoming Events
This week is all about the US labour market data and the recent releases haven’t been encouraging on a forward-looking basis. Today, the main event will be the US Jobless Claims report accompanied by the US PCE data. Tomorrow, we conclude the week with the US NFP and ISM Manufacturing PMI reports. It’s hard to see the Dow Jones climbing even if the data misses as the signals for a recession are accumulating, but the stock market always finds ways to surprise even in the face of economic problems.