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Talking Points:

- The Dow Jones Industrial Average rallied for the bulk of Q2, but started to pull back around the FOMC rate hike that took place around the middle of the month. That short-term weakness has lasted into the start of Q3, and the index continues to trade in a cautious manner as we trade into the second-half of 2018.

- There’s a potential area of confluent support underneath current price action, and if we’re able to get a re-test coupled with a sense of buying support, the door can re-open to bullish strategies in the Dow.

- 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 Bullish Trend Pulls Back in Q1 After a Strong Post-Election Run

The first half of this year was the first in which US equities started to display a bit of pressure after what had become a really strong year-plus run following the Presidential Election. In the Dow Jones Industrial Average, prices had run-up by as much as 52.7% from the election night lows up to the January highs; a very strong run by almost any measure over a relatively brief period of time.

But as we traded into February, that strength started to give way to selling, and prices quickly posed a 38.2% pullback of that prior trend. Support began to show around 23,176, and the rest of Q1 traded in a rather directionless manner, as a bounce in February was faded-out in March.

Dow Jones Daily Chart: 38.2% Pullback of Post-Election Move in February

Dow Jones Daily Chart DJIA DIA YM

Chart prepared by James Stanley

Q2 Brings 2.5 Months of Strength Into the June FOMC Rate Hike

Q2 was an exhibition of strength, for the most part. After opening April around 23,400, strength returned and prices pushed higher thru the next two and a half-months. Price action eventually ran-up to the 14.4% retracement of the post-Election move, and that resistance began to show just ahead of the Fed’s June rate hike. After that rate hike, prices slid-lower and that theme of weakness largely remained as we closed off Q2.

Dow Jones Daily Chart: Q2 Brings 2.5 Months of Strength to the 14.4% Fibonacci Retracement

Dow Jones Daily Chart DJIA DIA YM

Chart prepared by James Stanley

As we open into Q3, the longer-term bullish trend remains intact, but short-term resistance has started to show around prior support. This can keep the door open for a deeper retracement, and the area of support that we’ve been following can remain attractive for a bullish thesis around the index should it come into play. This area of support is a confluent zone, as this shares a trend-line projection taken from those earlier-year lows, combined with the 76.4% retracement of the Q2 bullish move.

Prices finding support in this area can re-open the door to strategies of strength in the index.

Dow Daily Chart: Short-Term Resistance at Prior Support, Support Potential from Trend-Line Projection

Dow Jones Daily Chart DJIA DIA YM

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