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Dow Tests Short-Term Support as Month-End Nears

Dow Tests Short-Term Support as Month-End Nears

2018-08-30 14:32:00
James Stanley, Currency Strategist

Dow Jones Talking Points:

- The Dow is holding support just above the 26k psychological level and this comes after support was found off of the 25k level just two weeks ago. This extends the bullish run in the Dow that has seen as more than 9% added to the index from the late-June swing-lows. This keeps the door open for bullish continuation in the index as we wind down the month of August.

- The primary concern with the Dow at the moment is one of positioning, as we’re far from any nearby points of support, making for a difficult backdrop to manage risk for strategies of bullish continuation. With month-end nearing, the prospect of a pullback remains of interest, and we look at three support levels below that could be usable for that approach.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro 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 Breakout Testing Higher-Low Support

It’s been another big month for US stocks, extending the summer move that saw the Dow Jones Industrial Average rise by as much as 9.07% from the late-June lows. A breakout showed in July that carried prices-higher throughout the month, and after a pullback in early-August, the Dow found support around the 25k psychological level before jumping up to fresh six-month highs above the 26k area.

Dow Jones Daily Price Chart: Up More than 9% From June Lows to August Highs

Dow Jones DJIA DIA Daily Price Chart

Chart prepared by James Stanley

At this stage, the growing concern is one of frothiness. As in, we had a nasty pullback to start the year as the Dow retraced 38.2% of the index’s post-election gain. Support built-in around that 38.2% retracement, and after four months of digestion, bulls re-grabbed control to begin that 9% push off of the June lows over the past two months.

This would keep the trend in the Dow as bullish, but proximity to support and ability to manage risk become of concern as we push-higher on the charts, re-approaching that all-time-high in the Dow that was set in January of this year.

Dow Weekly Price Chart: From 25k to 26k in a Week – 1,000 Dow Points Not What They Used to Be

Dow Jones DJIA DIA Weekly Price Chart

Chart prepared by James Stanley

At this stage, the door can remain open for short-term bullish strategies, much as we looked at on Tuesday. Traders would likely want to wait for a pullback to a deeper support above the 26k level has become a bit worn after facing three days of support tests.

As such, we’re going to retain our same support targets from Tuesday, looking for prices to dip down to support before bullish continuation themes become attractive again. It’s important to note that we’re nearing month-end from a really strong run of Dow strength, so a bit of profit-taking in the final days of the month would not be too out of the ordinary; and a hold of support as we open into September could keep the prospect of topside continuation as a workable theme in the Dow.

Dow Jones Four-Hour Price Chart: Holding Around 26k for Now, Deeper Support Potential

Dow Jones 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 Q3 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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.


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