Bottom line: Dow Jones long term structure continues to remain bearish against 29600 resistance. Unlike the SPX500 and NASDAQ, Dow Jones has managed to hold prices below February highs, keeping bears in control. The indice might have carved a lower high just below 29000 mark.
Fundamental Outlook:
Dow Jones had rallied yesterday to close around 28674, up above +0.88%. The rally was backed by an upbeat ISM manufacturing PMI, printing 56.00. This clearly suggests that the manufacturing sector continues to expand. Over the next few sessions though, the indice might face renewed selling pressure around 29000/200 mark.
AUDUSD had print above the 0.7400 mark yesterday before pulling back. The exchange rate has dropped to 0.7355 as we prepare to publish the update, and might come under further pressure as Q2 GDP disappoints.
It has contracted by -7% against expectations of -5.9%, pushing the economy into a recession. Further the Reserve Bank of Australia has kept the official cash rate (OCR) unchanged to 0.25%. Adding further pressure on the exchange rate are the rising trade tensions with China.
Bitcoin had peaked through 12473 highs on August 17, 2020. Since then the crypto has dropped to 11100 lows before finding some support. The crypto trades around 11800 mark as we prepare this update, and might come under further pressure if US Dollar gains over the next several weeks.
Technical Analysis:
Dow Jones has held below its February 2020 highs at 29600 until now. NASDAQ and SPX500 has managed to push through fresh highs in the past weeks. This might be considered as bearish divergence and potential trend reversal towards 18200, the March 2020 lows.
Dow Jones had produced an impulse wave between 29600 and 18200 mark between February-March 2020. Ideally, an impulse is followed by a corrective wave in the opposite direction. The counter trend rally since 18200 might be complete around 28700/800 mark.
Dow Jones might face strong resistance, for any attempts to push beyond 29600 mark. Also note that the indice has reached fibonacci 0.88 retracement of the previous drop. High probabilities remain for a potential bearish reversal towards 18200 in the next several weeks.
Most traders might be willing to initiate short positions as the indice trades near resistance (28800/29000). The protective stops might be placed above 29600 resistance and target potential might be seen towards 27500, 23000 and 18200 respectively.
Prepared by
Harsh Japee, Technical Analyst.
Dow Jones Chart
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