The Dow Jones selloff has been remarkable with key levels being breached with no hesitation as the sentiment turned negative. The reason for the selloff is unclear as the US data has been supporting the soft-landing narrative but the sharp slowdown in the Chinese economy is expected to infect the other advanced economies and drag the global economy down. Moreover, the quick rise in long term Treasury yields is also tightening financial conditions with real yields approaching the levels last seen during the Global Financial Crisis of 2008. It’s a tough environment for sure, so the technicals will be very helpful in managing the risk.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones fell below a key support level where we had the confluence of the previous swing high, the trendline and the 50% Fibonacci retracement level. Coupled with the possible fakeout above the 35289 resistance, the bias has turned bearish and the sellers should now remain in control with the target standing at the swing low level at 33805.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that if we get a bigger pullback, we will have a good resistance around the 34800 level where we can find the previous support now turned resistance, the 38.2% Fibonacci retracement level and the red 21 moving average. This is where the sellers are likely to pile in with a defined risk above the level and target the 33805 level. The buyers, on the other hand, will need the price to break above the resistance to switch the bias from bearish to bullish and target another high.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor trendline defining the current short-term trend. We can see that the price is consolidating near the trendline and the previous swing high level. A break to the upside should lead to a rally towards the 34800 resistance, while a strong rejection should see the sellers piling in more aggressively and take the price towards new lows.
Upcoming Events
This week is pretty empty on the data front with just the US PMIs scheduled for Wednesday and the US Jobless Claims for Thursday. We seem to be at a point where good news is bad news because of the Fed’s stance and bad news is bad news because the slowdown in global growth will lead to a recession in many countries included the US. Remember also that it’s the Jackson Hole Symposium week, so we will get comments from Fed officials again and especially Fed Chair Powell who is scheduled to speak on Friday.