Dow Pulls Back from Monthly Highs as Q3 Breakout Takes a Pause
- The bullish breakout in US stocks has driven the Dow Jones Industrial Average to fresh monthly highs above the psychological level of 25,000. But – as we saw in May and again in June, bullish motivation has appeared to wane as we’ve traded above this key level. The big question is whether we’ll see this area show as support, which could be usable for short-term trend strategies.
- Prices have been pulling back ahead of the US equity open, and this presents the opportunity to play pullbacks in the index, looking for higher-low support potential. The same levels that we looked at on Tuesday remain valid for such, but we’ve also added in another area that can be used for aggressive strategies.
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Dow Jones Bullish Breakout Runs to Fresh Monthly Highs
It’s been a strong start to Q3 and the second-half of the year for US stocks, and this includes a brisk topside run in the Dow Jones Industrial Average. While the index spent the first week of July building into a symmetrical wedge formation, prices put in a bullish breakout around Non-Farm Payrolls, and that theme of strength has largely continued as prices ran up to fresh monthly highs. This brought along another topside break above the 25,000 level. But as we saw in Q2, that bullish motivation was downgraded a bit with price action testing above this key psychological level.
Dow Jones Daily Price Chart: Q3 Bullish Breakout Attempts to Maintain Momentum Above 25K
Chart prepared by James Stanley
The big question around US stocks and more to the point, the Dow Jones Industrial Average is one of continuation potential. Will bulls be able to continue to push-through, leaving 25,000 behind as we had previously seen in January, just before the February retracement showed-up?
At this stage, the route of bullish continuation would appear most attractive, similar to what we looked at last week, and this opens the door for higher-low support potential should this current pullback continue. Earlier in the week, we looked at a series of levels that could be attractive for such a scenario, and those prices still remain valid for topside strategies. However, given continue build of strength above 25,000, there would be an additional area to look to for more aggressive strategies, positioned around the potential for support to show around the psychological level. That psychological level syncs with the bearish trend-line taken from the January and June swing-highs, and this would add an element of confluence to the area, with prior trend-line resistance becoming fresh support.
Dow Jones Hourly Price Chart: Higher-Low Support Potential for Bullish Continuation
Chart prepared by James Stanley
To read more:
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX