Dow Jones 50% Fib Resistance and Wedge
The Dow Jones Industrial Average(DJI) lost $445(-1.8%) today as price continues to find resistance at the 50% Fibonacci retracement level which is the halfway point between the all-time high of $29,568 made in February and the coronavirus selloff low of $18,213 made in March. Price has been capped at the 50% Fibonacci level for the past 6 trading sessions as traders struggle to move price higher on negative economic data releases, most notably today with the Empire State Manufacturing data release which showed new orders and shipments collapsing to their lowest reading on record for -57 point decline to -78.2, and retail sales data which was also released today and showed a -8.7% decline which was also a new record.
These data releases are a sign of what to expect going forward as the recent numbers mainly reflect March data, while the bulk of the negative coronavirus affects have been witnessed in April. Q1 2020 is already looking bad judging by the earnings releases that started rolling out this week, and since April wasn’t included in the data we can expect Q2 of this this year to be worse than Q1, especially since we still haven’t hit a peak in coronavirus cases or states lift their shelter-in-place orders which is weighing heavily on the economy due to non-essential businesses remaining closed and continuing to layoff workers.
From the selloff low through today, the Dow Jones has created a rising wedge pattern which is a bearish pattern that begins wide at the bottom and contracts, or tightens, as price moves higher. The apex of the current pattern is forming at the 50% Fibonacci retracement level which indicates that if price doesn’t move above the 50% level soon a breakdown out of the rising wedge is likely, possibly even tomorrow as the next set of initial unemployment claims data is set to be released. The past three weeks have seen 3.3, 6.8 and 6.6 million people file for unemployment bringing the 3-week total to just shy of 17 million people joining the ranks of the unemployed. The current average forecast for tomorrows release is expected to show at least another 5 million people filing for unemployment for the first time for the week ending Friday, April 10th.
A measured move can be made once/if price breaks down and out of the rising wedge pattern which will give us a price target to look for potential support, but for now a rough estimate would be a -$4,300(-18%) decline back down near the coronavirus selloff low which I’ve already been forecasting a re-test of.
The Relative Strength Index(RSI) shows price still above the 50 level but continuing to fail to move higher as price hesitates at the 50% Fibonacci level. An RSI reading above 50 indicates bullish price momentum, while a reading below 50 indicates bearish price momentum.
The Price Percent Oscillator(PPO) shows the green PPO line rising above the purple signal line which indicates short-term bullish momentum for price, but both lines remain below the 0 level which indicates that overall momentum remains bearish. A bullish PPO reading is when both the green PPO line and purple signal line are above the 0 level.
The overall view on the Dow Jones remains neutral, but the resistance being seen at the 50% Fibonacci level as well as the rising wedge pattern that has formed indicate that price may be close to breaking bearish again. My previous stop-loss level was down near the 23.6% Fibonacci retracement, but has now been raised up to the 38.2% Fibonacci level due to 50% Fibonacci resistance and the bearish rising wedge pattern. My opinion is that this has been a bear market rally off of the coronavirus selloff low and that a second wave down is probable, especially now that we are beginning to see economic data and earnings from the tail end of Q1 which is when the coronavirus damage began, therefore the stop-loss level has been raised and represents the best level to lock-in gains if you’ve bought the dip. A move below the stop-loss level and 38.2% Fibonacci retracement level would also put price back in the lower range of the total Fibonacci area and is where price is most susceptible to further weakness.
These data releases are a sign of what to expect going forward as the recent numbers mainly reflect March data, while the bulk of the negative coronavirus affects have been witnessed in April. Q1 2020 is already looking bad judging by the earnings releases that started rolling out this week, and since April wasn’t included in the data we can expect Q2 of this this year to be worse than Q1, especially since we still haven’t hit a peak in coronavirus cases or states lift their shelter-in-place orders which is weighing heavily on the economy due to non-essential businesses remaining closed and continuing to layoff workers.
From the selloff low through today, the Dow Jones has created a rising wedge pattern which is a bearish pattern that begins wide at the bottom and contracts, or tightens, as price moves higher. The apex of the current pattern is forming at the 50% Fibonacci retracement level which indicates that if price doesn’t move above the 50% level soon a breakdown out of the rising wedge is likely, possibly even tomorrow as the next set of initial unemployment claims data is set to be released. The past three weeks have seen 3.3, 6.8 and 6.6 million people file for unemployment bringing the 3-week total to just shy of 17 million people joining the ranks of the unemployed. The current average forecast for tomorrows release is expected to show at least another 5 million people filing for unemployment for the first time for the week ending Friday, April 10th.
A measured move can be made once/if price breaks down and out of the rising wedge pattern which will give us a price target to look for potential support, but for now a rough estimate would be a -$4,300(-18%) decline back down near the coronavirus selloff low which I’ve already been forecasting a re-test of.
The Relative Strength Index(RSI) shows price still above the 50 level but continuing to fail to move higher as price hesitates at the 50% Fibonacci level. An RSI reading above 50 indicates bullish price momentum, while a reading below 50 indicates bearish price momentum.
The Price Percent Oscillator(PPO) shows the green PPO line rising above the purple signal line which indicates short-term bullish momentum for price, but both lines remain below the 0 level which indicates that overall momentum remains bearish. A bullish PPO reading is when both the green PPO line and purple signal line are above the 0 level.
The overall view on the Dow Jones remains neutral, but the resistance being seen at the 50% Fibonacci level as well as the rising wedge pattern that has formed indicate that price may be close to breaking bearish again. My previous stop-loss level was down near the 23.6% Fibonacci retracement, but has now been raised up to the 38.2% Fibonacci level due to 50% Fibonacci resistance and the bearish rising wedge pattern. My opinion is that this has been a bear market rally off of the coronavirus selloff low and that a second wave down is probable, especially now that we are beginning to see economic data and earnings from the tail end of Q1 which is when the coronavirus damage began, therefore the stop-loss level has been raised and represents the best level to lock-in gains if you’ve bought the dip. A move below the stop-loss level and 38.2% Fibonacci retracement level would also put price back in the lower range of the total Fibonacci area and is where price is most susceptible to further weakness.
Penafian
Maklumat dan penerbitan adalah tidak dimaksudkan untuk menjadi, dan tidak membentuk, nasihat untuk kewangan, pelaburan, perdagangan dan jenis-jenis lain atau cadangan yang dibekalkan atau disahkan oleh TradingView. Baca dengan lebih lanjut di Terma Penggunaan.