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The Dow Spends a Week at Support: Will Bulls Follow-Through?

The Dow Spends a Week at Support: Will Bulls Follow-Through?

2018-09-07 15:00:00
James Stanley, Currency Strategist
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Dow Jones Talking Points:

- The Dow Jones Industrial Average has spent this week holding support around prior resistance, taken from the approximate 25,888. There hasn’t been much topside follow-through, however, as resistance has continued to build around prior short-term support just above the 26k level. While the bullish trend remains, the inability of buyers to punch-above resistance alludes to the potential for a deeper pullback before that bigger-picture bullish theme might be ready for continuation.

- Next week brings a plethora of macro drivers to global markets, and this week saw European stocks take a nasty turn after building into bearish backdrops last week. These all remain factors of consideration for bullish continuation strategies in US stocks as we near the end of Q3.

- 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 Still Holding Support, But Can Bulls Punch Above 26k?

In our equities forecast coming into this week, we remarked about the geographic dispersion of the pressure that’s begun to show in equity markets. While both the Dow and the S&P remained strong holding higher-low support, European and British stocks had started to show signs of a bearish turn. Those bearish themes grew in prominence this week as sellers took control of the DAX and the FTSE; but in the US we largely just held the lines of support.

In the Dow, we continued to hold around the 25,888 level that we looked at last week and then again on Wednesday. That level is helping to hold support for the index throughout this week as we’re now seeing a fourth consecutive day of reaction there.

Dow Jones Daily Price Chart: Support from Prior Resistance Holding So Far

Dow Jones Daily Price Chart

Chart prepared by James Stanley

On a shorter-term basis, the bigger issue for bulls is the lack of follow-thru after those support tests. Prices have shown a tendency to pullback after testing above the 26k level, and while this may not be enough to bring on themes around a full-fledged reversal of the prior bullish breakout, it does urge caution around chasing prices-higher from our current levels.

Dow Jones Hourly Price Chart: Bulls Unable to Sustain Drive Above 26k

Dow Jones Hourly Price Chart

Chart prepared by James Stanley

Dow Jones Strategy

The bullish trend that’s kept pushing prices in the Dow through the latter portion of this summer remains, as does the potential for continuation of that theme. The primary complication at the moment would be with positioning, as we remain very near those highs and bulls have yet to show any indication of being able to leave support behind.

As such, this keeps the door open for a deeper retracement before that bigger picture bullish theme becomes attractive for continuation. The deeper support levels that we’ve been following at 25,695 and 25,500 remain as workable should support show at either level. Outside of that, bulls would need to push beyond this week’s high to open the door for topside strategies in the index.

Dow Jones Four-Hour Price Chart: Deeper Support Potential for Bullish Continuation

Dow Jones 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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