Despite good economic data like lower core inflation, stable jobless claims, lower inflation expectations and strong consumer spending that support the soft-landing narrative, the Dow Jones just keeps on falling with very shallow pullbacks. One of the main reasons might be the non-stop rally in long term yields and real yields as it makes financial conditions tighter ultimately weighing on the stock market. The good economic data might also be interpreted as bad news because inflation might remain higher for longer requiring more tightening from the Fed. There’s no easy answer at the moment, so the technicals should be more helpful.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones has reached a key support level where we can also find the 50% Fibonacci retracement level. The fakeout above the key 35289 resistance is undoubtedly a bad omen for the buyers, but a lot will depend on what happens around this support zone. In fact, we should see the buyers stepping in here with a defined risk below the support to target the breakout again. The sellers, on the other hand, will want to see the price breaking lower to pile in even more aggressively and extend the fall into the 33805 level.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price yesterday fell below the major trendline which is another bearish signal but it would be confirmed only if the price breaks below the key support as well. Otherwise, we might see a fakeout if the price bounces strongly here and then rallies towards the 35289 resistance.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor divergence with the MACD right at the support zone. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we should see a pullback into the downward trendline where we will also find the confluence of the Fibonacci retracement levels and the broken major trendline. The sellers are likely to lean on the downward trendline with a defined risk above it to target the break below the key support. The buyers, on the other hand, will want to see the price breaking higher to pile in even more aggressively and extend the rally into the resistance confirming the reversal.
Upcoming Events
The only top tier economic indicator left is the US Jobless Claims report scheduled for today. The market has been weak in the past days even in the face of good data, so we might be at a point where bad data causes recessionary fears and good data leads to higher rates expectations. It’s possible that the market is more likely to react positively to data that it’s not too cold nor too hot, so big deviations might be bearish either way.
