Dow Jones Industrial Average Technical Analysis - Expect Volatility

The Dow Jones Industrial Average is set for another volatile trading week as US earnings season gets into full-swing, and the Federal Reserve deliver their latest assessment of the United States economy.

Continued gains above the psychological 30,000 level has cemented the technical bulls case for the Dow Jones Industrial Average over recent weeks, however, traders and investors remain cautious towards the index as the US economy stumbles along.

The DJIA is closely linked to the real economy, meaning that the index is vulnerable to any bearish news surrounding COVID-19 lockdowns, and weak US economic data points. The index took a tumble last Friday, after the Director of the NIAID warned about new variants of COVID-19 in the United States.

Without question, the impacts of Fauci’s speech on Friday were reduced after the US Manufacturing PMI came in at a twelve-year high. Additionally, the DJIA has been catching a notable bid since Janet Yellen’s speech last week.

Traders were relieved that US Treasury Secretary Yellen seemed keen to deliver massive amounts of economic stimulus to the US economy and get the Biden administration $1.9 trillion stimulus package into the real economy.

Going forward, traders should expect plenty of volatility in the DJIA as a number of banking stocks inside the index look set to correct, and tech stock IBM suffers wild fluctuations after last week’s pullback.

The VIX CBOE Volatility Index is relatively depressed at the moment and holds just above 20. Typically, volatility spikes can catch traders off-guard when they are consolidating around depressed levels. A breakout looks set to take place once the 20 to 28 range is broken.

Sentiment towards the index is slightly negative at the moment. The ActivTrader Market Sentiment tool shows that some 57 percent of traders are currently bearish towards the DJIA, and 43 of traders are bullish towards the index.

Dow Jones Industrial Average Short-Term Technical Analysis

The four-hour time frame shows large amounts of negative MACD price divergence, which extends down towards the 29,000 level. Traders need to be careful as the bearish divergence is reaching epic proportions and could be reversed at any time.

Somewhat problematically, MACD price divergence can take time to unwind, so a bearish catalyst could be needed to trigger a major down move in the Dow Jones Industrial Average.

Traders face a dilemma. If they sidelined remained the index could continue higher and set new record highs. Still, the MACD indicator is issuing a clear warning here, so it a correction could still come.

Source by ActivTrader.

Dow Jones Industrial Average Medium-Term Technical Analysis

Looking at the daily and weekly time frame, the technical picture remains extremely positive while the price trades above the 29,550 level. This area is important because it marks the neckline of a large inverted head and shoulders pattern.

The overall upside projection of the bullish pattern is suggesting an eventual move towards the 40,000-resistance level.

However, the move higher is likely to remain volatility, and a pullback does seem likely along the way before DJIA moves towards its overall upside target. The 35,000 level seems like an achievable target if the index continues to hold above 31,000.