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The Fed Cries ’Wolf’ - Dow Jones Industrial Average Retests Highs

The Fed Cries ’Wolf’ - Dow Jones Industrial Average Retests Highs

Jeremy Wagner, CEWA-M, Head of Education


Talking Points

-Fed hikes rates for first time since December 2015; Dow Jones Industrial Average recovers from initial losses

-Higher probability patterns suggest continued strength

-Pattern remains bullish while prices are above 18,600

The Federal Reserve raised its key interest rate on Wednesday for the second time since 2008. Though the rate hike was widely expected, traders placed focus on the Fed’s projections for rate hikes in 2017.

The Fed appears to be remaining aggressive with three rate hikes planned in 2017.

It is worth noting that in December 2015, when the Fed hiked rates for the first time since 2008, the Fed projected four hikes in 2016. Well, 2016 will pass with only one hike registered which occurred on Wednesday.

Therefore, the Fed has been talking a more aggressive game of hikes versus what is actually delivers. The aggressive forecasts by the Fed could be like the little boy crying wolf. After a while, the townspeople grow numb the boy’s chants and do not take the real risks seriously.

For now, Dow Jones Industrial Average (DJIA) shrugged off the rate hike. DJIA is currently retesting all-time highs and pressing 20,000.

The rest of this article will be technical in nature. If you wish to read our outlook for equities, grab a copy here.

From a technical perspective, DJIA is in an uptrend and the bullish pattern appears incomplete. Back on June 29, we highlighted a medium term bullish pattern that could drive DJIA to 19,700 and possibly 21,000.

Now that we are near the first target, the market is at risk of a pull back, though the pullback would fit as a correction within the uptrend.

We have a wave relationship showing up near 20,044 and of course psychological round number resistance of 20,000. If a pullback materializes, DJIA may drop towards 19,000-19,250. Above 20,000 and the next level of wave relationships arrive near 21,378.

The bullish outlook remains strong so long as we are above 18,600. If the market moves below 17,500, then the bullish outlook is abandoned.

If you wish to join Jeremy in his US Opening Bell webinars to discuss this market, register and join here.

Dow Jones Industrial Daily Chart

Created using TradingView

---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.