Yesterday, the US ISM Services PMI far exceeded expectations and prompted a massive sell-off in the Dow Jones. Market prices for future interest rate expectations have become a little more hawkish, with a 50/50 chance of another rise in November and fewer rate cuts in 2024. Last week we have had a reaction of “bad news is good news”, whereas yesterday it was quite the opposite: “good news was bad news”. It appears that the market continues to trade based on interest rate expectations.
Dow Jones Technical Analysis – Daily Timeline
On the daily chart, we can see that the Dow rallied to support, turned resistance around the 35,000 level and sold as sellers rallied there aiming for a drop to the 35,000 level. level of 33,805. The bias remains bearish as the moving averages are still crossed on the downside.
Dow Jones Technical Analysis – 4 Hour Timeframe
On the 4-hour chart, we can see that the Dow exploited the 61.8% Fibonacci retracement level almost perfectly before falling, then extended the sell-off as the moving averages crossed lower, confirming the bearish sentiment. We could see a pullback now as the price is hovering around previous lows which should act as support.
Dow Jones Technical Analysis – One Hour Timeframe
On the hourly chart, we can see that we have a nice bearish setup here. In fact, from a risk management perspective, sellers are better off waiting for a pullback towards support turned resistance around the 34700 level where we also have the confluence with the 61.8% Fibonacci retracement level, the trend line and the 4 o’clock red. 21 moving average.
This is where sellers should pile in with definite risk above the trendline to target the 33805 level. Buyers, on the other hand, will want to see price break above the trendline to invalidate the bearish setup and position for a rally to the highs.
Events to come
Today we will have the latest important US economic data for this week: the US jobless claims report. We saw yesterday that the market does not appreciate strong US data, as it increases the risk that the Fed will have to do more and ultimately lead to an even deeper recession. So, if we get good data, we should see further weakness in the Dow Jones, while bad data should bring relief. However, at some point, the market should also start worrying about bad data.