The Dow
Jones selloff has been remarkable with key levels being breached with no
hesitation as the sentiment turned negative. The reason for the selloff is
unclear as the US data has been supporting the soft-landing narrative but the
sharp slowdown in the Chinese economy is expected to infect the other advanced
economies and drag the global economy down. Moreover, the quick rise in long
term Treasury yields is also tightening financial conditions with real yields
approaching the levels last seen during the Global Financial Crisis of 2008.
It’s a tough environment for sure, so the technicals will be very helpful in
managing the risk.
Dow Jones Technical
Analysis – Daily Timeframe
Dow Jones Daily
On the daily chart, we can see that the Dow Jones
fell below a key support level
where we had the confluence of the
previous swing high, the trendline and the
50% Fibonacci retracement level.
Coupled with the possible fakeout above the 35289 resistance, the bias has
turned bearish and the sellers should now remain in control with the target
standing at the swing low level at 33805.
Dow Jones Technical
Analysis – 4 hour Timeframe
Dow Jones 4 hour
On the 4 hour chart, we can see that if we get a
bigger pullback, we will have a good resistance around the 34800 level where we
can find the previous support now turned resistance, the
38.2% Fibonacci retracement level and the red 21 moving average. This is
where the sellers are likely to pile in with a defined risk above the level and
target the 33805 level. The buyers, on the other hand, will need the price to
break above the resistance to switch the bias from bearish to bullish and
target another high.
Dow Jones Technical
Analysis – 1 hour Timeframe
Dow Jones 1 hour
On the 1 hour chart, we can see that we
have a minor trendline defining the current short-term trend. We can see that
the price is consolidating near the trendline and the previous swing high
level. A break to the upside should lead to a rally towards the 34800
resistance, while a strong rejection should see the sellers piling in more
aggressively and take the price towards new lows.
Upcoming Events
This week is
pretty empty on the data front with just the US PMIs scheduled for Wednesday
and the US Jobless Claims for Thursday. We seem to be at a point where good
news is bad news because of the Fed’s stance and bad news is bad news because
the slowdown in global growth will lead to a recession in many countries
included the US. Remember also that it’s the Jackson Hole Symposium week, so we
will get comments from Fed officials again and especially Fed Chair Powell who
is scheduled to speak on Friday.