Talking Points
- Dow Jones Industrial Average (DJIA) volatility suggests a complacent market that may sell off in the short term
-Fed rate hike expectations fail to inspire DJIA
-Medium term outlook remains bullish above 17,800
We have previously commented how the low volatility levels is leading to a complacent market. Complacent markets tend to eventually get rattled so the risk of a small sell off is mounting.
The inability of DJIA to punch meaningfully higher when the expectations for future rate hikes are slowly lessening hints that a sell off may be bubbling below the surface. The current expectation for a rate hike by the Fed during the December 2016 meeting is currently 39%. This is down a little over the past couple weeks.
In US30, a CFD which tracks the DJIA , there is a technical level near 18,700 that may be suppressing the advance. However, the technical picture is still medium term bullish and therefore a small sell off would not negate the medium term patterns.
Chart prepared by Jeremy Wagner
We would like to highlight a couple technical levels to keep an eye on. First, notice the purple dotted line above. Prices successfully broke above this line, then came back to test the same line on August 2. Above this line keeps the bulls quite comfortable.
In fact, so long as prices remain above 17,800, we can look for support to form on an eventual break higher towards 19,700. The 17,800 is derived from the blue upward sloping support line. Below 17,800 does not negate those bullish opportunities, but does begin to open the door to more immediate term bearish scenarios.
Bottom line, don’t let the near term noise distract from the medium term patterns. The medium term outlook remains for higher prices as we have been bullish DJIA since June 29 towards 19,700. Therefore, we’ll await lower levels to position towards the higher prices so as to generate a better risk to reward ratio.
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Good luck!
---Written by Jeremy Wagner, Head Trading Instructor, EDU
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