The Dow Jones bullish momentum has been waning recently despite a less hawkish Fedspeak and increased rate cuts expectations. One good reason might be the weakening of US data, especially on the labour market side, as we have also seen recently in the details of the US Consumer Confidence report. Historically, the sustained rise in the unemployment rate is bearish for the stock market.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Dow Jones almost reached the cycle high erasing 3 months of decline in one single month. This is an incredible rally which was most likely fuelled more by FOMO rather than a meaningful fundamental change. The fall in Treasury yields caused by the increased rate cuts expectations are generally bullish for the stock market, but they are coming because of the weakening labour market, which is eventually bearish.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has been diverging with the MACD for quite some time now as the price was approaching the cycle high. This is generally a sign of weakening momentum often followed pullbacks or reversals. In this case, it might be a signal that we could indeed see at least a pullback soon. From a risk management perspective, the buyers will have a much better risk to reward setup around the 34200 support where we can also find the 38.2% Fibonacci retracement level for confluence.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see even better the divergence with the MACD which has been going on since the break above the resistance. The price action recently has been confined into a rising channel with the buyers leaning on the lower bound of the channel and the red 21 moving average to keep charging the cycle high. A breakout of the channel to the downside should confirm the move lower with the sellers targeting first the base of the channel around the 34800 level and upon a further break lower, the support at 34200. The buyers, on the other hand, will want to lean on those levels to position for another rally into a new high.
Upcoming Events
Today we will get the US PCE and US Jobless Claims data with the market likely focusing more on the Jobless Claims figures given that we already saw the latest inflation data with the US CPI report just two weeks ago. Tomorrow, we conclude the week with the US ISM Manufacturing PMI which missed expectations by a big margin the last time.
