Yesterday, the Dow Jones opened lower and ended the day negative following another hot US CPI report. This pushed back rate cut expectations, with the market now pricing in lower rate cuts than the Fed’s dot plot predicted. Treasury yields have soared across the board, putting some pressure on the stock market. Today, the market might even think that the economy is still doing well and that the Fed is not going to raise rates anyway, but there is now good reason to see a larger downward correction, the Bulls should therefore be very careful.
Dow Jones Technical Analysis – Daily Timeline
Dow Jones Daily
On the daily chart, we can see that the Dow Jones is trading in an ascending channel and continues to diverge with the MACD for a long time. This is usually a sign of weakening momentum, often followed by pullbacks or reversals. Recently we had a breakout that opened the door for a larger correction towards the 37128 level. Price bounced off the first support level at 38464 after the Goldilocks NFP, but fell back there after another report hot CPI.
Dow Jones Technical Analysis – 4 hour time frame
Dow Jones 4 hours
On the 4-hour chart, we can see that price bounced off the first support level but was rejected by the downtrend line and the blue 8 moving average before breaking below support after the CPI release . Sellers will now have even more conviction to sell the rallies and we can expect a fall to the second level at 38043 next. Buyers, on the other hand, will want to see price break above the trendline to invalidate the bearish setup and position for a return to the highs.
Dow Jones Technical Analysis – 1 Hour Time Frame
Dow Jones 1 hour
On the hourly chart we can take a closer look at the downtrend line where we also find the confluence of the red 21 moving average and the 38.2% Fibonacci retracement level. This is where we can expect sellers to step in with a set risk above the trendline to position themselves for a continuation of the downtrend with a better risk/reward ratio. Buyers, on the other hand, will want to see the price skyrocket to start aiming for new highs.
Events to come
Today we receive the US PPI report and the latest US jobless claims figures. Tomorrow we wrap up the week with the University of Michigan Consumer Sentiment Survey.
cnbctv18-forexlive
