Dow Jones Price Falls to Key Trendline as Fed Enters Taper Talk Window

Dow Jones Price Forecast:

• The Dow Jones broke beneath the rising trendline from March 2020 for the first time
• A confirmed break could see the Industrial Average fall further as the index grasps for support
• US Dollar, Yields Surge as Fed Brings Forward Taper Timeline

Dow Jones Price Falls to Key Trendline As Fed Enters Taper Talk Window

The Dow Jones is at risk of breaking beneath a key trendline following the June FOMC meeting. In the corresponding press conference, Fed Chairman Jerome Powell revealed the central bank has effectively entered the taper talk window which, in addition to the revised dot plot, culminated in a relatively hawkish overall tone. As a result, the Dow Jones, Nasdaq 100 and S&P 500 fell lower as rate hike projections moved forward.

Dow Jones Price Chart: Daily Time Frame (January 2020 – June 2021)

While the major indices all suffered losses, the Dow Jones appears to be on the brink of a major technical break. The trendline in question is derived from the index’s pandemic low in March 2020 and has influenced price throughout the time since. While the Nasdaq 100 and S&P 500 have since broken beneath their respective trendlines, the Dow enjoyed a supplementary level of support derived from various market peaks throughout the last fifteen months. Until Wednesday, the March trendline was unbroken since its inception.

Dow Jones Price Chart: 1 - Hour Time Frame (May 2021 – June 2021)

As it stands, the convergence of support around 34,000 is at risk of opening the door to further losses after price pierced the March trendline. Alongside the two rising trendlines is also the index’s 50-day simple moving average which could serve as resistance should price fall beneath. If bulls can mount a recovery and retake the rising trendline, further declines might be avoided in the short term. That said, the intraday break of the level has dealt irreparable damage to the trendline and will see its influence reduced going forward.

How to Short Sell a Stock When Trading Falling Markets

Either way, the longer-term outlook for the major indices remains constructive. While the Fed’s findings may create shorter-term headwinds for the major indices, hawkish policy moves are grounded in improvements in the underlying economy which should help drive equity growth far into the future.

Unfortunately for the more active traders, the passing of the June FOMC meeting may leave markets grasping for catalysts as the Summer Doldrums arrive and price action dries up. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX