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The Dow Jones Industrial Average has been weakening again, due to an increase in fears about the global economy and worry data inside the latest Consumer Price Index report from the United States economy.
Earlier this week the DJIA moved back to test towards the 35,000-resistance level, which denoted a huge multi-month trendline breakout that took place last week. The rejection seems very bearish technically.
Traders have also been reacting to the August CPI inflation report. CPI in the US rose 0.3% in August, down from a 0.5% rise in July and below the 0.4% projection that economists had made.
However, the year-over-year CPI number raised concern amongst investors. CPI has rose 5.3% over the past 12 months, while core CPI was up 4% from where it was this time last year.
The data showed gasoline prices were up another 2.8%, marking the third straight month of increases of more than 2%. New vehicle prices kept up their steady rise, climbing 1.2% during the month.
Due a generally downbeat mood towards the global economy the DJIA looks primed for further loses. The technicals and fundamentals are aligning, as it the latest sentiment data.
Sentiment towards the index is worryingly bullish at the moment. The ActivTrader Market Sentiment tool shows that some 81 percent of traders are currently bullish towards the DJIA, despite the recent price pullback. This is very significant, as it may suggest further heavy losses are coming.
Dow Jones Industrial Average Short-Term Technical Analysis
The four-hour time frame shows that a bearish head and shoulders pattern has now officially formed, following the recent price drop towards the August monthly price low..
According to technical analysis the pattern will be activated if the price golds under the 34,700-support level. The size of the pattern implies that a drop towards at least the 34,000 level is coming.
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Dow Jones Industrial Average Medium-Term Technical Analysis
Looking at the daily time frame a major multi-month trendline breakout has taken place, which is further increasing downside pressure. The recent weekly candle also closed below the trendline.
Large swaths of negative price divergence are seen across the RSI indicator, with the negative price divergence extending down towards the 37,300 area at a minimum.
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