Dow Jones Technical Analysis – Key area in sight

first half of the week was highlighted by big misses in the US economic data
like Job Openings, Consumer Confidence and ADP. These
might be the first signs that a recession is indeed on the horizon as the
labour market is starting to show weakness. In fact, the market is no longer
seeing the Fed hiking interest rates as the September and November
probabilities dropped further and the rate cut expectations were brought
forward. Nonetheless, despite the worrying data, the Dow Jones rallied strongly
as if nothing bad happened at all. There could be different reasons that range
from a relief rally due to dovish expectations and lower yields or the market
interpreting the softer labour market readings as good news for inflation going
forward. Until we see more data, the technicals will help in managing the risk
and in identifying the most probable market directions.

Dow Jones Technical
Analysis – Daily Timeframe

On the
daily chart, we can see that the Dow Jones has rallied all the way back to the
previous support now turned resistance. This is
a very strong and quick move which was not supported by the data, so it’s
possible that it was just technical, and the bearish bias has not changed.
Nonetheless, the price is now trading within the resistance zone where we can
also find the red 21 moving average for confluence. This is
where the sellers are likely to pile in with a defined risk above the level and
target the 33805 support.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we had a divergence with the
MACD before
the quick turnaround as this is generally a sign of weakening momentum often
followed by pullbacks or reversals. In fact, we got a big turnaround into the
resistance and if the price continues higher, then the trend will switch back
to bullish, and the buyers will target the all-time high.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we
have another divergence right at the resistance level. This might be a signal
for the sellers that the pullback is ending, and another big bearish move is
about to unfold. If the price breaks below the upward trendline, the
sellers should pile in even more aggressively as the probabilities for another
big drop would increase. The last line of defence for the buyers will be the
support area around the 34700 level as a break below it will give the sellers
complete control.

Upcoming Events

This week is all about the US labour market data and the
recent releases haven’t been encouraging on a forward-looking basis. Today, the
main event will be the US Jobless Claims report accompanied by the US PCE data.
Tomorrow, we conclude the week with the US NFP and ISM Manufacturing PMI
reports. It’s hard to see the Dow Jones climbing even if the data misses as the
signals for a recession are accumulating, but the stock market always finds
ways to surprise even in the face of economic problems.

This article was written by FL Contributors at Source