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Talking Points:

- US Equities continue to display congestion and the Dow is currently testing trend-line resistance in a building descending wedge formation.

- Short-term strategies would likely be looking to trade around levels defined by recent congestion; while longer-term stances can look for resolution of this digestion to highlight continuation potential of longer-term themes.

- DailyFX Forecasts have been updated for Q2, and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Dow Tests Resistance in Descending Wedge

US equities have been coiling for the past few months, with price action building deeper into digestion patterns as items like US monetary policy come further into focus. After an approximate 49% jump from the lows ahead of the 2016 US Presidential election up to the January highs, prices in the Dow have finally started to display some element of pullback over the past few months. That pullback didn’t start lightly, as a troubling sell-off in early February very much brought with it the prospect of a deeper reversal. But – support from that February sell-off has held through multiple tests, and at this stage that area on the chart has become a rather rigid zone that helps to make up a descending wedge pattern in the Dow. This area helped to provoke another bounce last week, and price action is now testing a descending trend-line taken from February and April swing-highs.

Dow Daily Chart: Descending Wedge Pattern

dow jones industrial average daily chart

Chart prepared by James Stanley

Price Action Tests Trend-Line Resistance After Last Week’s Hold of Support

On Monday of this week we looked at prices starting to test the trend-line taken from February and April swing-highs. After price action posed considerable grind throughout Monday’s session, a quick bearish move developed and prices ran down to another level of interest, and this is the 38.2% Fibonacci retracement of the March sell-off. This level shows up around 24,283, and so far, this has helped to hold the lows in the Dow after that resistance inflection on Monday.

Dow Hourly Chart: Short-Term Congestion within Longer-Term Digestion

DJIA Hourly Chart

Chart prepared by James Stanley

Moving Forward

At this stage, traders would be facing the contention of trading around what’s been some sloppy near-term price action; but there are setups available for those that want to push the theme. At this point, short-side could be attractive under the expectation for prices to move down and revisit that zone of longer-term support. This approach could be supported by stops above 24,500, which was last week’s swing-high; while initially targeting the Fibonacci level that helped to build support around 24,282.

Alternatively, longer-term approaches will likely want to wait for a more confirmed element of trend before looking to take on exposure. A topside break above the confluent zone of 24,555-24,572 would amount to fresh three-week highs, along with a bullish resolution to our descending wedge pattern. This could open the door for a deeper move of bullish continuation, targeting April and March swing highs around 24,862 and 25,450, respectively.

Dow Hourly Chart: Bullish Potential Upon Resolution of Wedge

Dow hourly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

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