Bottom line: Dow Jones long term structure remains bearish against 29600 resistance. Bulls have managed to produce a counter trend rally post the June 09-15 drop. It seems that a lower top is in place around 26936 yesterday.
Fundamental Outlook:
Dow Jones rallied more than +2.0% and managed to close at 26624 mark yesterday. Futures are trading higher today around 26880 levels as we prepare to publish. The recent optimism might be short lived as large banks including Citigroup and J P Morgan Chase hint the worst is yet to come.
COVID-19 infections continue to rise US, South Africa and India as many states rollback to lock down. Risk sentiment/Global Indices continue to rise as well with Dow Jones leading the way this week. We would again warn readers to exercise caution over the increased optimism.
AUDUSD, the risk-related currency pair, also managed to inch higher towards 0.7018 this morning. It has been easing off since then, and is expected to come under further pressure. The rising tensions between the US and China might drag the exchange rate lower. Also, if risk aversion returns, the currency might face further selling pressure.
Technical Analysis:
Dow Jones might have carved a lower top around 26936 yesterday, and bears should remain poised to resume lower from here. The indice has held below its June 09, 2020 high at 27636 until now, and is expected to turn towards 18200, going forward.
Dow Jones drop between 29600 and 18200 was an impulse wave. Normally, an impulse is followed by a corrective wave. The rally between 18200 and 27636 was corrective and also terminated just above the fibonacci 0.786 retracement of the earlier drop.
Ideally, the indice should hold below 27636 interim resistance and unfold into another impulse wave towards the direction of the larger trend. A fibonacci extension of the earlier drop is pointing below 18200 levels for the next bear leg.
Traders might be prepared to initiate fresh short positions around current price action (26800/900), with protective stops above 29600 and potential target below 18200. Only a break above 29600 will change the wave structure.
Prepared by
Harsh Japee, Technical Analyst.
Dow Jones Chart
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