Source: PaxForex Premium Analytics Portal, Fundamental Insight

After US financial markets managed a positive holiday-shortened week last week, traders should brace for a wave of red to kick off this week. The post-Thanksgiving period often results in what traders call a Santa Clause rally, reflecting the overall bright spirit of market participants during the holiday season. Online Black Friday sales in the US topped $9 billion, setting a fresh record, and Cyber Monday should add to the boost in holiday shopping, but the rest of the season could face difficulties. Retailers had to slash prices amid surging inflation to attract sales, which could hurt the bottom line and add to selling pressure. It could harm sentiment and add to downside momentum in the Dow Jones 30 index, which has no direct exposure to consumers.

Rare protests in China against Covid-19 restrictions added to concerns during the Asian trading session, but the scope and demographics of demonstrators were unclear. Warnings by the outgoing US Director of the National Institute of Allergy and Infectious Diseases (NIAID) and the Chief Medical Advisor to the President, Dr. Fauci, about the ongoing Covid-19 pandemic served as a reminder about the severity of Covid-19 and associated deaths. The general public and most politicians are likely to ignore them. With Covid-19 booster shot adoption at 15%, it could result in unexpected disruptions over the next four to twelve weeks.

Market participants should focus on inflation, which has receded from its peak but remains harmful to consumers and businesses. Central banks will continue to hike interest rates but decrease the pace, which will pressure everyone exposed to debt, which stands at record levels, while consumers approach the end of the road. Traders should exercise caution and not dismiss fundamental issues that could take years to normalize, placing bearish pressures on the global financial system.

The forecast for the Dow Jones 30 index turned bearish after a massive 20%+ bear market rally to price action into its horizontal resistance area, from where bullish momentum is fading fast. Volatility is likely to increase with the Tenkan-sen flat and the Kijun-sen ascending, but the Ichimoku Kinko Hyo Cloud shows signs of a pending sideways trend after the Senkou Span B flatlined. Traders should monitor the CCI, where a negative divergence has formed in extreme overbought territory, and this technical indicator moved below 100. It has plenty of downside potential, and a breakdown below zero could accelerate a pending sell-off. Can bears regain control over price action and force the Dow Jones 30 index into its horizontal support area, keeping the bear market intact? 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 33,775 to 34,385 zone, PaxForex recommends the following trade set-up:

• Timeframe: D1
• Recommendation: Short Position
• Entry Level: Short Position @ 34.160
• Take Profit Zone: 31.560 – 32.225
• Stop Loss Level: 34.620

Should price action for the Dow Jones 30 Index breakout above 34,385, PaxForex recommends the following trade set-up:

• Timeframe: D1           
• Recommendation: Long Position
• Entry Level: Long Position @ 34.620
• Take Profit Zone: 35.045 – 35.495
• Stop Loss Level: 34.385

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