Bottom line:  Dow Jones hits fresh highs at 29373 with RSI displaying bearish divergence on the daily chart. It is good to avoid getting into a bull trap, as a sharp reversal seems to be on cards.

Technical Analysis:

Dow Jones hits yet another high at 29373 before reversing, clearly showing resilience towards a bearish reversal. Structurally, the rally that began in December 2018 after printing 21792 lows has completed 3 waves labelled as A-B-C here. The above rally seems to be a part of a larger correction and prices are expected to drop towards 21700 at least. A series of new highs being print lately could be a bull trap, which is better avoided. Immediate price support is seen at 28500 levels and a break below that would finally confirm that a meaningful top is in place at 29373. Please also note that RSI on the daily chart has been diverging lower with each high (not shown here). It could be just a matter of time before the indice reverses lower. Early signs are already being confirmed with an evening star candlestick pattern, after printing highs at 29373. A follow through in price action is required to break below 28500 to confirm. An aggressive trading strategy still remains to be on the short side against 29373 with potential targets around 28000. Also note that the fibonacci 0.382 retracement of Wave C here is around the 28000 mark. If the drop is Wave 4 of the rally that began from 21792, it should find support around 28000. A conservative trading strategy could be to remain flat for now and allow prices to break below 28500, and then look to sell on rallies. In either case, avoid getting into a clear bull trap as traders look to be preparing for a meaningful reversal ahead.

Prepared by

Harsh Japee, Technical Analyst.

Dow Jones Chart

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