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The Dow Jones Industrial Average remains one of the most fascinating trades at the moment, as the index, which is a proxy for the real economy, continues to tread water around the 34,000 to 35,000 level.
Currently the tape is bearish, meaning that the price action surrounding the DJIA is not hinting at a recovery in the heavily industrially weighted index. More to the point, a number of sell signal remain in force.
However, even with these sell signals in place, such as the Parabolic SAR on the daily time frame, the trend is still bullish. The index bounced sharply from its 200-day moving average earlier this month and remains firmly above it
It must be said that even with an energy crisis emerging, high inflation, the threat of tapering, consumers spending less as they deal with the impact of COVID-19 and the highly contagious delta variant, the index is still relatively well supported.
We probably need to see a major range break of the October high to low before we see a clear path in the Dow Jones Industrial Average. I feel with earnings season, and the potential for tapering to be delayed, we could see an upside surprise.
Sentiment towards the index is extremely bullish at the moment. The ActivTrader Market Sentiment tool shows that some 78 percent of traders are currently positive towards further gains in the DJIA.
I feel it may be difficult for the DJIA to rally give the high levels of bullish sentiment towards the index, especially since retail traders are often on the wrong side of the market and have poor market timing.
Dow Jones Industrial Average Short-Term Technical Analysis
The four-hour time frame continues to show that a large falling broadening expanding wedge pattern is in play. These patterns are typically amongst the most bullish reversal patterns.
As things stage, a move above the 35,600 level is needed for a breakout from the wedge. If a breakout does happen the index could go parabolic towards a new all-high.
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Dow Jones Industrial Average Medium-Term Technical Analysis
Looking at the daily time frame, the trend is still bullish, and the bigger picture continues to show that massive, inverted head and shoulders pattern play out to the upside.
According to the overall size of the pattern the DJIA could just be warming up, as the final target for the mentioned price pattern would take the index towards the 39,600 area.
Expect further gains in this index while the 200-day moving average is well defended. Until then, buying low and close to the 200-day is the top strategy.
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