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Dow Jones Industrial Average Looks to Fed for Direction

Dow Jones Industrial Average Looks to Fed for Direction

Jeremy Wagner, CEWA-M, Head of Education

Talking Points

-Dow Jones Industrial Average (DJIA) finished the week near weekly lows

-Use Monday’s high (18,358) and low (17,994) to mark off key levels to determine the short term trend

-This is a shorter term outlook for DJIA; Download our quarterly forecast for a longer term equities forecast.

After opening last week strong, Dow Jones Industrial Average finished the week on its heels. Previously, we identified last Monday’s trading range as being a shorter term trend defining range and there is no material change to that forecast. The trading to finish the week stayed inside Monday September 12’s high and low. Clearly DJIA is consolidating after the September 9 sell off as it awaits the conclusion of Wednesday’s FOMC rate decision.

Fed Fund futures are pricing in a 20% chance of a rate hike on Wednesday. Therefore, 80% expect no hike and the surprise move is if the Fed raises rates. If for some reason, the Fed does decide to hike rates, that increase in rates would likely slam the stock market. Though a hike isn’t expected this week, the market is still leaving the door open for a rate hike by the end of 2016 as the probability for a December 2016 hike is 55%. As a result, stocks have the US presidential election and possibly a rate hike to navigate over the next couple months.

In the meantime, Monday’s trading range is critical to helping us define the next near term trend. We would be surprised to see this range break prior to Wednesday’s Fed announcement. However, when the range finally does break, look for some additional follow through in price in the direction of the break.

Therefore, a break above Monday’s high of 18,358 opens the door towards all-time highs 18,668. On the other hand, if the September 12 low of 17,994 is broken, then that means the 7 month blue trend line can no longer hold up the prices. A break below the trend line opens the door for a follow through down towards 17,000.

If you are interested in what the shorter term momentum looks like as DJIA approaches either 18,358 or 17,994, check out our GridSight Index. (Change the chart setting from “EUR/USD” to “US30” on either “m5” or “m10”.)

Learn how leverage affects profitability in risk to reward ratios affect trading results in pages 3-9 of our Traits of Successful Traders research.

Suggested Reading/Viewing: Libor a Sign of Rate Speculation, Risk Trends or Regulation?

---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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.