Bottom line: Dow Jones long term structure continues to remain bearish against 29600 mark. The counter trend rally, which began from 18200 lows in March also seems to have completed around 28160 levels over the last week.
Fundamental Outlook:
Dow Jones has been drifting in a range and managed to close marginally lower around 27797 levels yesterday. SPX500 has managed to tick higher again and closed around 3393; futures hitting all-time high around 3398 today. Markets will be looking forward for FOMC minutes today around 02:00 PM EST.
Global equity markets, especially SPX500 and NASDAQ, Gold, EURUSD, US Dollar Index, AUDUSD, NZDUSD, GBPUSD and others continue to trade near their respective price extremes. Geopolitical risk remains as US-China tensions keep rising and if phase one deal is cancelled, we might witness a severe risk aversion. The US Dollar and Japanese Yen stand to be the only beneficiaries in that case.
AUDUSD exchange rate inched marginally higher yesterday and hit 0.7265 mark. The risk associated currency pair might be face selling pressure towards 0.7275/0.7300 levels, as it has already entered overbought zones. Further if risk assets sell off, it might act as a fuel for the exchange rate to slide.
Technical Analysis:
Dow Jones might be preparing to turn lower again, after having print 28160 highs last week. The indice might be looking to push through 18200 levels over the next several weeks as bears are poised to take back control from here. Bottom line is that prices should stay below 29600 mark.
Dow Jones had earlier dropped as an impulse, between 29600 and 18200 levels. Ideally, an impulse id followed by a corrective wave, sub dividing into 3 waves in general. The rally between 18200 through 28160 seems to be corrective and might have terminated already.
Also note that the indice has tested fibonacci 0.88 retracement levels of the earlier drop, which is close to 28160 levels. High probability remains for a bearish reversal through 26000 and subsequently below 18200 levels going further.
Further the RSI on the daily chart is showing a clear bearish divergence as Dow Jones rallies through 28160 mark. Traders might be willing to hold short positions, with protective stops above 29600 mark and projected targets below 18200 levels respectively.
Prepared by
Harsh Japee, Technical Analyst.
Dow Jones Chart
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