Source: PaxForex Premium Analytics Portal, Fundamental Insight
The Dow Jones 30 crossed the 40,000 mark for the first time in history, driven by one moderately weaker-than-expected CPI reading. Traders who subscribe to the Dow Theory will note that this milestone could crumble, as the Dow Jones Transportation Index paints a different economic picture than the hope-based rally the Dow Jones 30 has experienced. Volatility could spike this week as traders reassess the broader picture.
The trading week starts with no relevant economic data, allowing traders to digest price action and economic data. The consumer shows signs of slowing down fast, with credit card debt and delinquencies surging, and new credit crumbling. Consumer-focused retailers report weak demand, and inflation remains high despite a 0.1% weaker-than-expected monthly increase. Super-core inflation continues to pose a threat, and retail sales data shows a contraction if adjusted for inflation.
The weeks ahead could experience increased volatility as bulls and bears square off around the 40,000 level. With the Dow Jones Transportation Index at current levels, traders should expect a sell-off into the summer.
The forecast for the Dow Jones 30 turned cautiously bearish after passing the psychological resistance level of 40,000 and settling into a new horizontal resistance area. After a bullish crossover, the Kijun-sen has flatlined, with the Tenkan-sen moving higher, suggesting more volatility ahead. Adding to the bearish outlook is the Ichimoku Kinko Hyo Cloud following a bearish crossover. The Senkou Span B is flat, with the Senkou Span A in a choppy sideways trend. Traders should also monitor the CCI in extreme overbought territory as a negative divergence has formed. A breakdown below 100 could trigger a profit-taking sell-off. Can bears regain control over the Dow Jones 30 and force price action into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the Dow Jones 30 Index remain inside the or breakdown below the 39,845 to 40,200 zone, PaxForex recommends the following trade setup:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 40.040
- Take Profit Zone: 38.645 – 39.020
- Stop Loss Level: 40.400
Should price action for the Dow Jones 30 Index break out above 40,200, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 40.400
- Take Profit Zone: 40.800 – 41.210
- Stop Loss Level: 40.200
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