Talking Points:
- US Stocks have extended their Q3 rally, and the Dow Jones Industrial Average has pushed back towards the prior July highs. We’re seeing a bit of trepidation from bulls as we near that previous high water-mark.
- Last week we looked at the prospect of playing pullbacks based on Fibonacci support from the prior April-June major move, and after a bounce at the 23.6% retracement, we’re back towards prior highs. This can open the possibility of two different approaches at our current level: Another pullback play or, if prices are able to take-out the July high, bullish breakout strategies targeting the June highs around 25,400.
- 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 Continues
US stocks have continued their upward trajectory so far this week, helping to get back in a bullish direction after last week’s pullback to support. We had previously looked at the bullish breakout in the Dow after the index ran up to fresh monthly highs last week. But rather than chase the move, we instead looked at the prospect of working with a pullback based around the Fibonacci structure produced from the April-June bullish move. The 23.6% retracement of that trend comes in at 24,921, and this is the area that helped prices to bounce last Friday morning.
Dow Jones Hourly Price Chart: Bounce from 23.6% Fibonacci Support
Chart prepared by James Stanley
At this stage, the topside approach could be challenging given the resistance that we’re close to testing. The monthly highs are less than 100 points away, and a bearish trend-line can be found by connecting the June high to the July high, and that projects to current price action.
Dow Jones Four-Hour Price Chart: Resistance Potential
Chart prepared by James Stanley
Given the current backdrop of strong short-term momentum combined with the prospect of longer-term resistance constraining continuation of the move, and there would be two possible ways of moving forward for those looking at bullish strategies on the index.
A break to fresh highs, above the earlier July swing can open the door for topside breakouts. This could target that prior area of resistance that runs to the approximate 25,400; but traders would likely want to take profits ahead of time while adjusting stops; just in the event that we end up with another lower-high.
Alternatively, traders can look to once again play a pullback for bullish trend continuation, and this can open the door to potential support at either 25,108 (the 14.4% retracement of that same April-June move), or the psychological level around 25,000. Given the close proximity of 25,108, traders would likely want to wait for confirmed support before looking to trigger topside positions, and this can be accomplished with something like waiting for the hourly candle to close with illustration of support at the level (a wick indicating a bullish bounce).
Dow Jones Hourly 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
