Source: PaxForex Premium Analytics Portal, Technical Insight
Most traders remain away from their desks until the second Monday in January. It is a seasonal pattern over the Christmas holidays and New Year, resulting in thin trading volume. It often pushes equity markets higher, also known as a Santa Claus, or Santa, rally. Volatility may increase as portfolio managers adjust portfolios before the end of the year to compute performance and bonus payments. They usually rush into the closed positions in the new year, creating a positive start.
Economic data remains light, and news flow concerning omicron dominates the headlines. Some traders cheer a decrease in restrictions to the Covid-19 response of this mutation, while preliminary data suggest it protects against Delta and could displace it. It already accounts for the majority of new cases in the US. The danger is that more individuals may contract the virus, accelerating mutations and their unknown effects. Omicron already disrupted holiday travel across the US, with thousands of canceled flights. It is likely to remain a factor throughout 2022.
Inflation remains elevated, central banks behind the curve, and consumers and governments loaded with debt. The impact on earnings will drive price action next year, and traders should expect a rocky performance for the Dow Jones 30 Index and US equity markets in general. Rising borrowing costs, ongoing global supply chain bottlenecks, and a slowing economy foster conditions for choppy trading sessions and the potential for a bear market. Is the 2021 Santa Clause rally the calm before the storm, or can markets rally in January, which is often viewed as a precursor for a positive year-end performance?
The forecast for the Dow Jones 30 Index turned bearish after price action advanced in thin-volume, recording a double top formation, which is a bearish chart pattern. Confirming the lack of bullish momentum are the Tenkan-sen and the Kijun-sen, both trending sideways inside the Ichimoku Kinko Hyo Cloud. The CCI advanced into extreme overbought territory on the D1 chart but began to move lower. Traders should wait for a breakdown below 100 before entering their short positions. Can bears awaken from their winter slumber and force the Dow Jones 30 Index into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Dow Jones 30, D1
Analysis:
Should price action for the Dow Jones 30 Index remain inside the or breakdown below the 36,320 to 36,565 zone, PaxForex recommends the following trade set-up:
- Time frame: D1
- Recommendation: short position
- Entry level point: 36420.00
- Take Profit Zone 35040.00 - 35670\
- Stop Loss Level: 36930
Alternative scenario:
Should price action for the Dow Jones 30 Index breakout above 36,565, PaxForex recommends the following trade set-up:
- Time frame: D1
- Recommendation: long position
- Entry point: 36930.00
- Take Profit Zone: 37300.00 - 37670
- Stop Loss level: 36565.00
