Talking Points:
- Pressure continues to show in the Dow Jones Industrial Average, and this comes despite the fact that the Nasdaq 100 set a fresh all-time-high just yesterday. The Dow is now testing a key support zone on the chart that we had previously looked at on Tuesday. Will buyers be able to stage a bullish reversal of the past week worth of selling?
- The possibility of bearish breakouts becomes attractive should sellers push through this zone, and that opens up the potential for a re-test of the bullish trend-line that can be found by connecting the February, April and May lows in the index.
- DailyFX Forecasts 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 Jones Moves Down to Key Support Zone
US equities continue to face a bit of pressure, and despite the fact that the Nasdaq set a fresh all-time high just yesterday, sellers continue to show in the Dow Jones Industrial Index. We had looked at a short-side setup last week ahead of the June FOMC rate decision. With markets primed for a hike the Dow held resistance at the 14.4% Fibonacci retracement of the post-Election move. After the FOMC rate decision, along with the ECB rate decision the following morning, risk aversion started to show with a bit more prominence and that bearish setup in the Dow quickly moved down through both targets.
When we looked into the Dow on Tuesday of this week, we honed-in on a potential zone of support that runs from 24,384 up to 24,522. The level of 24,522 is the 23.6% Fibonacci retracement of that same post-Election move in the Dow, and the price of 24,384 is the 50% marker of the April-June bullish move. This zone has started to come into play after prices gapped-lower this morning.
Dow Jones Four-Hour Chart: Prices Begin Test of Key Chart Support
Chart prepared by James Stanley
On shorter-term charts, we can see sellers with control of near-term prices. This makes the prospect of bullish plays unattractive until this starts to show some semblance of change. The prior swing-high on the below chart comes in around the 38.2% retracement of the April-June move, and a break-above here gives us a higher-high to work with, which may be an early indication that buyers re re-grasping control of short-term price action.
Dow Jones Hourly Chart: Lower-Lows, Lower-Highs as Bears Remain in Control
Chart prepared by James Stanley
The Bearish View on the Dow
If we do not get buyers showing-up within this zone of support, the door re-opens for additional bearish plays. This vantage point can look for a break of the 50% Fibonacci retracement of the April-June move to open-up the possibility of bearish breakouts down to the 61.8% and 76.4% retracements at 24,144 and 23,847 respectively. That price of 23,847 is confluent with the bullish trend-line that can be found by connecting the February, April and May lows in the index; and this could be an interesting reversal area/bearish profit target should risk aversion continue to show in the near-term.
Dow Jones Daily Chart: Deeper Bearish Breakout Potential Should Support Not Hold
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
Contact and follow James on Twitter: @JStanleyFX
