*Live technical and fundamental analysis of the Dow Jones US stock market index*
Welcome back to the blog. I hope you all had a good long weekend and are ready to get back to working hard this week! In this blog post I am going to revisit the Dow Jones index and provide you with updated technical and fundamental analysis of this financial instrument.
As you may be aware, I was attempting to short this stock index multiple times during a 3 week period back in early April of this year. If you haven’t read the blog post explaining all the trade I took and the analysis and trade management involved then please click on the link below to view it now.
Let’s get right to it and start with the higher timeframe weekly price chart for the Dow Jones.
I can see a few key pieces of technical analysis on the Dow Jones index that I am paying attention to. The first is the bullish trendline that was quickly broken back in early March this year. This shows a significant shift in momentum and the higher timeframe trend technically became bearish when this occurred. Since the lows of near 18,000 were made and the recovery since, price is now beginning to get close to retesting this bullish trendline that was previously broken. This could provide the weekly timeframe lower high that bearish traders so badly want to see.
In this region there is also nice a price support/resistance zone that I have marked on the chart in blue. This zone has shown multiple price reactions in previous years and it could be a source of good liquidity if price gets in to that area. Price is just approaching the lows of the zone today.
And finally, by applying the fibonacci retracement tool to the all time highs seen this year @29,595 and the lows @18,213 I can see that the 0.618 retracement level is sitting at around 24,250 right in the centre of the support/resistance zone. This area should provide some price reactions this week/early next week.
The daily timeframe chart is the first “higher” timeframe where the 50EMA is showing below the 200EMA to suggest a bearish a ligament. I have circled this crossover on the chart. However, price is now trading back above the daily 50EMA and is trading above the 50 and 200EMA on all timeframes below this.
This shows that in the short term, price is bullish on stocks and we can see this from the strong buying that has occurred over the past few days. Personally, I am not interested in shorting stocks until price gets back below the 50EMA on at least all timeframes below the daily (15min, 1hr/4hr).
Let’s look at the intraday price movements on the 4 hour timeframe chart.
The lower timeframes have started to become choppy and it is why I have avoided trading this instrument in recent weeks. As you can see on the chart above, price has made higher highs and lower highs and higher lows and lower lows. This is choppy market behaviour which makes sense considering the fundamentals effecting stock markets right now.
The blue box I have marked on the chart shows expanding waves with contradicting lows and highs. This is not my favourite type of price action.
So what is moving these markets? Naturally, weekly unemployment data and poor economic data is battling constant updates on vaccine trials and coronavirus cases/death rate data. This is leading to significant swings in price and high volatility.
This is then being supplemented by the US Fed quanititve easing and stimulus packages that are being announced almost continuously. The Fed are doing a great job of keeping markets alive right now and have acted hard and fast in combatting the economic effects of coronavirus, at least in the short term anyway. Remember, we are still only a few months in to this right now.
In the long term I believe a lot relies on the production of a vaccine and even then, I personally don’t believe we will see consumer demand return to pre 2020 levels for a very long time.
I also think that the effects of the US Fed stimulus efforts will begin to diminish over time and lose their effectiveness as QE increases. This could potentially provide bearish momentum if economic data remains bad and unemployment remains high.
Use the FREE economic calendar from DailyFX to stay on top of financial market fundamentals. Click on the link below to check it out.
Potential trading opportunities.
As mentioned previously, until price finds some resistance and gets back below the 50EMA on at least the intraday charts then I will not be looking to short. Stocks are looking bullish in the short term right now.
If the resistance zone marked on the chart above holds strong then I believe we could see at least a small market sell off once again. Price tends to move in ranges and as you can see, the Dow Jones likes to move in 2000 point ranges. A sell-off back down to 23,000 is possible.
However, intraday charts show price is bullish right now and it could continue to climb. If price carries on then it could easily return back to the 27,000 level which showed resistance back in early March when the first wave of the stock market drop occurred.
The momentum of the recovery in stock markets is beginning to slow down. You can see this by the shape of the price action curve that I have drawn on the chart above. Unfortunately this does mean we will likely see more choppy market structure in the future.
I have marked on the whole number price levels so you can see them more clearly on the 4hr timeframe chart. These 2000 point ranges seem to be quite effective at the momentum with 25,000 showing resistance this morning.
I am a momentum trader and I don’t like choppy sideways markets. I will be waiting for price to make another clear break in one direction before entering.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.