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Dow Jones Grinds at Support; Will Bulls Respond?

Dow Jones Grinds at Support; Will Bulls Respond?

2018-09-05 14:32:00
James Stanley, Strategist
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Dow Jones Talking Points:

- The Dow is continuing to pull back after last week’s fresh six-month highs, and the first area of support that we were following had held the lows yesterday, and is being tested again this morning. This points to the fact that we may have a deeper retracement before the bigger-picture bullish trend is ready for resumption.

- This summer ended with considerable strength in US stocks, marked by a support test in late-June at 24k that was followed by a support test in mid-August around 25k. While the Dow had eclipsed the 26k level last week, we warned against using that for higher-low support as a deeper pullback was starting to appear more likely.

- 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 Grinds at Support

September has opened in a rather cautious manner for US equities, and this comes on the heels of a very strong finish to the summer. After retracing in June, the Dow found support around the 24k handle, and this led into a strong top-side run throughout July. After a pullback in the second week of August, support again appeared around a psychological level, this time 25k; and that was followed by another pronounced topside run in the index with prices soon perching above the 26,000 level. We warned of looking to that spot for higher-low support in our piece last Thursday, and price action has scaled below this level to find a bit of support at the ‘s1’ area that we were following around 25,886.

Dow Jones Four-Hour Price Chart

Dow Jones DJIA DIA Four-Hour Price Chart

Chart prepared by James Stanley

At this stage, the longer-term trend in the Dow remains bullish; but the big question is one of alignment of short-term themes with that longer-term trend. Since those fresh highs were printed last Wednesday, a series of lower-lows and lower-highs has shown on the hourly chart. This morning saw buyers come into Dow futures ahead of a re-test of yesterday’s low, so we may be at the early stages of a re-emergence of bullish price action; but traders would likely want to wait for a topside break back-above 26k before getting too comfortable with this morning’s bounce holding at a higher-low. Otherwise, we may be looking at a deeper retracement to support levels at 25,695 or 25,500.

Dow Jones Hourly Price Chart: Lower-Lows, Highs From Last Wednesday; Can Buyers Push Above 26k?

Dow Jones DJIA DIA Hourly Price Chart

Chart prepared by James Stanley

The bigger picture theme around the Dow at the moment begs the question: Can the index take-out the all-time-high that was set in January? Last week’s fresh six-month highs have pulled back for four consecutive days, with today’s price action being the fifth day of retracement. But – we’ve seen buyer defense at support so far this week, and whether bulls can defend the line here appears to be key as to timing around those approaches for bullish continuation.

But – even if we area headed for a deeper support test, the longer-term theme in US stocks remains long and strong; and the below Daily chart of the Dow helps to put the current backdrop in focus, and how a retracement to 25,695 or 25,500 could retain the longer-term bullish theme in the Dow.

Dow Jones Daily Price Chart: Deeper Support Potential for Longer-Term Bullish Continuation

Dow Jones DJIA DIA Daily 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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