Bottom line: Dow Jones long term structure continues to remain bearish until prices stay below 29600 resistance. The indice is progressing into its last corrective rally and is already extended for now. We continue to maintain our stance for a swift bearish reversal anytime soon from 25800/26000 levels.  

Fundamental Outlook:

Dow Jones continued its winning streak yet another day, closing around +1% higher at 25729 levels. The one big question every investor wants to know is this: “What is driving this rally?” Over 40 million jobs have been lost since the COVID-19 pandemic broke out. US-China tensions have been on the rise lately, adding further is the current protests in the US that are turning violent over the death of George Floyd.

The closest answer could be Investor Psychology. Hopes and optimism over the Fed Stimulus in recent weeks, opening up of economies post COVID-19 lock down, a V-Shaped economic recovery starting Q3-2020 are some factors potentially driving the current rally. Are we being too optimistic, too early?

AUDUSD, related with risk-sentiment managed to stage an impressive rally over the past few sessions and hit 0.6982 today. The GDP figures came in accordance with expectations shrinking to 1.4% over 2.2%. It would be interesting to see how AUDUSD reacts to the next major hurdle at 0.7030.

Technical Analysis:

Dow Jones continued its rally as bulls hit 25887 mark yesterday. The indice is still progressing into its Wave C extension, which was expected to terminate around 25500/600 mark. The current rally should be seen as a potential bull trap, and avoided at any cost.

Dow Jones faces strong price resistance around 27100 levels and high probability remains for a bearish reversal ahead of that. Immediate support is now seen towards 25000 mark and a break below that would confirm the much awaited bearish reversal.

Dow Jones had dropped from 29600 through 18200 in an impulse wave. It confirms that the drop remains fairly incomplete and the indice would be required to print below 18200, going forward. Further, the rally since 18200 through 25800 is looking corrective. High probability remains for a bearish reversal soon.

Traders might be willing to remain short with protective stops above 29600 and projected targets below 18200 mark. A break below 25000 confirms the above bearish resumption.

Prepared by

Harsh Japee, Technical Analyst.

Dow Jones Chart

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