Technical Analysis

DOW JONES Technical Analysis | Forexlive

Following the more
hawkish than expected FOMC meeting, the market and the Dow Jones went into risk-off
mode breaking down and selling off for a few days. The market is now fearing
the risk of overtightening from the Fed as economic conditions deteriorate and
the Fed seems to be resolute to keep financial conditions tight for longer. The
absolute worst for the stock market is a too tight monetary policy and a deep

In fact, the Fed has been
complaining about the “extremely
tight” labour market for several times, they can’t have the confidence
in loosening their stance until they see the unemployment rate picking up. So,
in the end that leads to a “hard landing” scenario especially since the actual
layoffs were always bigger than the Fed forecasts.

In the chart above we can see how
the market cheered initially as the CPI
report missed again expectations but soon after went into
defensive mode as the FOMC event approached. The market was right, and the Fed
was more hawkish than expected causing a risk-off sentiment in the following days. The price
broke down and kept falling until the selling pressure waned.

In the 1-hour chart above we can
see how the price divergence with the RSI was signalling a loss of
momentum to the downside. In such instances generally the price pullbacks to a
previous swing level or the top/bottom of the swing where the divergence
started. In the chart above the price retraced back to the top (orange line) of
the whole divergent move.

This is also a previous broken support area (blue) that now may turn resistance. In fact, the price is diverging
with the RSI again showing some struggle right at the resistance. A break to downside
through the blue trendline and the orange line would give sellers more control

On the daily chart above we can
see how the CPI spike couldn’t break the resistance area at 35200-35400. After
the FOMC the price broke down through the blue trendline and the previous swing low
support zone.

As the selling pressure waned,
the price pull backed and it’s currently retesting the previous broken support
that now may turn resistance. On a downward continuation the clear targets are
the swing low at 31761 and further down the October low at 28650.

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