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Talking Points

-Dow Jones Industrial Average (DJIA) volatility reaches a 21 month low

-US Non-Farm Payrolls are set to release Friday morning and may create short term volatility

-Trend is still technically higher, look to buy dips

Dow Jones Industrial Average volatility is reaching multi-year lows. Volatility as measured through the average true range (ATR) is at their lowest levels since December 2014 (see sub-chart on image below). Though the Fed has been talking up the possibility for rate hikes, DJIA seems to be in a wait and see mode making for quiet trading conditions.

The next obstacle in the way for the Fed is this Friday’s jobs report. The US Non-Farm payrolls are set to be released at 9:30a ET. The expectation is for 180k new jobs created and for the unemployment rate to drop to 4.8%. Therefore, if jobs come in significantly stronger than expected, that could fan the Fed flames of a rate hike coming as the US economy is seen as improving. Aggressive rate hikes may act like a drag on DJIA as the cost of capital becomes more expensive.

Dow Jones Industrial Average Awaits Friday's Jobs Report

Chart prepared by Jeremy Wagner

On the other hand, a weak or expected reading becomes a thorn in the side for the Fed and DJIA may see a rate hike as something to be concerned with later and not now. Just like what we saw with Brexit, if the perceived event risk is several months off into the future, then the market tends to find something else to focus on in the near term.

We can see from the chart above how the market of December 2014 eventually gave way to greater volatility creating a small sell off. By pressing the market values lower, the market offered a better opportunity for traders to buy.

So long as prices remain above 17,800, we can look for support to form on an eventual break higher towards 19,700. Below 17,800 does not negate those bullish opportunities, but does begin to open the door to more immediate term bearish scenarios. We’ll reassess those patterns if prices do break below 17,800.

Bottom line, don’t be surprised if DJIA sells off a little and be mindful of the jobs report releasing on Friday which may create volatility. If prices do sell off, see how they behave near the 17,800 level to potentially align to the bullish side.

Interested in a longer term outlook for equities? Download our quarterly forecast here.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU

Follow me on Twitter at @JWagnerFXTrader .

See Jeremy’s recent articles at his Bio Page.

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