DJIA: Dow Jones Tests 25k as Post-FOMC Sell-Off Extends
DJIA Talking Points:
– Sellers have come back into the Dow and prices have moved-lower every day since last week’s FOMC rate decision. Last week’s high came in at a confluent area on the chart but in the week since, sellers have made a concerted push to get prices back down to the 25k psychological level.
– A number of headline items remain of concern as dynamics around Brexit and the Italian budget are coupled with an aggressive Fed and the prospect of more rate hikes in the not-too-distant future. In a speech last night, Jerome Powell noted the recent slowing growth around-the-world; but he also kept the door wide open for a December rate hike, which can keep pressure on stocks as the ‘Wall of Worry’ remains.
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Sellers Back in the Dow After FOMC
It’s been another troubling week of price action for US equities after the early-November recovery has come under fire. October was a brutal month, and quite the change-of-pace from the Q3 backdrop that saw bullish breakouts develop across US equity indices in all of the S&P 500, the Dow and the Nasdaq 100. Since then, however, bears have largely been in-charge, producing a deep reversal of those prior Q3 gains in October, and a re-emergence of sellers so far in November.
The first week of November saw 76.4% of the October sell-off erased. Resistance came in at a confluent area on the chart, as the area around 26,300 had two different Fibonacci levels of relevance: The 76.4% retracement of the October sell-off, along with the 23.6% marker of the Q3 bullish move at 26,263. That area helped to set the high last Thursday, just ahead of the FOMC rate decision, and since then price action has reverted back to a bearish state as each day since has brought losses to the index.
Dow Jones Daily Price Chart: Down Each Day Since Last Week’s FOMC
At this point, prices are testing below the 25k psychological level, and this is the bottom portion of a zone that I was previously following for support plays. That zone ran from 25,000 up to the 61.8% marker of the Q3 bullish move at 25,133, and Dow futures prices remain in this zone after yesterday’s extension to the post-FOMC sell-off.
This test inside of the zone is a bit different than the prior instance that I looked at in the opening days of November, as that prior support inflection came in after a fresh near-term higher-high, indicating scope for continued recovery. But for this iteration – we’re faced with a rather clear sell-off that’s held since last week’s FOMC meeting, combined with Fresh November lows as sellers have come back after the earlier-month recovery has fallen flat.
Dow Four-Hour Price Chart: Prices Push Back Below 25k
On a longer-term basis, the 2018 bullish trend-line remains in play after the projection helped to build in the October low. Between current prices and that trend-line are a number of potential support levels, which can be found around 24,793 (the 23.6% marker of the October sell-off), and 24,636 which is the 78.6% marker of the Q3 bullish move.
The big level of worry on the index is around 24,000, as the late-June low has yet to be tested following the higher-low support that showed-up to keep the October reversal at bay. If prices break below 24,000, bearish strategies may soon be favored as deeper sell-offs develop in US equities; but in that backdrop, there may be more attractive options for trading equity weakness, either-in a US index with wider representation such as the S&P 500 or the Russell 2000; or, potentially, overseas markets such as the German DAX or the Japanese Nikkei.
DJIA Daily Price Chart
Chart prepared by James Stanley
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— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX