Bottom line: Dow Jones structure continues to remain bearish against 29600 in the long run. The counter trend rally has finally hit resistance zone around 25200/300 today. A bearish reversal here, remains high probability.
Fundamental Outlook:
Dow Jones staged an impressive rally over +2.00% yesterday and closed near 25200 mark. Even today, futures have raised through 11250/60 as we write this article. Hopes of a vaccine for COVID-19, optimism over opening of economies, Fed measures taken over the past few weeks have been the driving factors behind this extended rally in May.
Having said that, the rising US-China tensions and economic damage by COVID-19 still remain in focus, and can quickly reverse the bullish sentiment in indices. Let us also remember the IMF forecast for Global GDP to shrink over -3% in 2020, before getting too optimistic.
AUDUSD managed to hit its peak for May at 0.6675, rising over +1.5% yesterday. It is trading very close to resistance around 0.6700 and is expected to push further. As the country re-opens post COVID-19 lock down, RBA prepares to keep monetary policy unchanged the next meeting scheduled on June 02. AUDUSD may come under renewed pressure if the RBA offers a dovish tone though.
Technical Analysis:
Dow Jones futures have finally hit resistance at 25250/60 today. We have been calling for this rally to materialize since 22800 lows on May 14, 2020. Dow Jones has rallied over 2000 points rising hopes in traders for a continuation further. Technically, a bearish reversal should be due anytime soon and Sow Jones could be heading lower again below 18000.
Dow Jones had dropped between 29600 and 18200 in the months of February-March 2020. It is still considered to be a major bearish boundary, which is being retraced. The counter trend rally that had begun from 18200 levels seem to be complete at 25250, which is also the fibonacci 0.618 retracement of previous drop.
Immediate resistance is seen at 27100 and is followed by 26900, while support is seen at 22800 respectively. Ideally Dow Jones should stay below 27100 and produce a bearish reversal. A drop below 22800 will confirm that the trend has reversed lower again.
Traders might be willing to initiate short positions around 25000/200 mark, with protective stop at 27300, and projected target below 18200 respectively.
Prepared by
Harsh Japee, Technical Analyst.
Dow Jones Chart
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