Talking Points:

- US stocks have been back-and-forth thus far in Q3, building into wedge formations as we approach the first major data release of the second-half of 2018 with this morning’s Non-Farm Payrolls report.

- This wedge formation could lead into a couple of different attractive themes. Should we get a down-side break, a big area of support is waiting underneath, and that can be used to stage bullish strategies off of the trend-line taken from 2018 swing-lows. Alternatively, a revisit to and hold of resistance in the zone that’s continued to play over the past week can keep the door open for short-side swing strategies.

- 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 Builds into Wedge Formation with Early Q3 Price Action

As we near this morning’s Non-Farm Payroll release, the Dow Jones Industrial Average is building deeper within a wedge formation that’s started to build with July price action. This comes after a nasty two-week sell-off to end the second quarter, and that was driven by a combination of a more-hawkish Fed, and growing jitters around trade wars and tariffs. As we’ve opened into Q3, there hasn’t been much more clarity on either matter, and as we approach the first major data release of July and Q3, price action in the Dow Jones is holding within a wedge formation as shown below:

Dow Jones Industrial Average Two-Hour Price Chart: Building Wedge Formation

Dow Jones Industrial Average DJIA DIA two hour price chart

Chart prepared by James Stanley

Given that we’re nearing a really big driver, and taken from the fact that the index is poised to pounce after spending the last week moving further within a digestion pattern, and this could be an ideal time to look for price to move to a level of preference. We’ve been following a key support area on the chart derived from a trend-line taken from the earlier-year swing-lows. This projects to the approximate area of the 76.4% retracement of the April-June major move, and if we do see price catch another iteration of support at or around this level, the door could be re-opened for bullish strategies in the Dow. This strategy could be supported by stops below either the May, April or February lows; depending on how aggressively the trader wants to push the move.

Dow Jones Daily Price Chart: Bullish Potential at 2018 Support Trend-Line

Dow Jones Industrial Average Daily Price Chart

Chart prepared by James Stanley

Alternatively, the past week has seen that wedge formation build underneath a key resistance zone, so if we do see a concerted topside break through this area, it’s not necessarily a direct sell as we’d have fresh highs along with the prospect of more. This breech of resistance could be construed in a bullish manner, looking for strength to continue to flow after the index resolves three weeks of digestion. For bears, the more attractive occurrence would be a revisit to and hold of resistance around the same area that we’d previously plotted for support, running from 24,384-24,522; as this could offer another short-side entry, looking for an eventual move down to that key support zone looked at above.

Dow Jones Four-Hour Chart: Revisit To and Hold of Resistance Keeps Door Open for Shorts

Dow Jones Industrial Average DJIA DIA Four-Hour Price 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

Contact and follow James on Twitter: @JStanleyFX