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.
This article was written by FL Contributors at www.forexlive.com.