Dow Jones approaching weekly resistance

Dow Jones (USA30), Weekly

Following Chair Yellen’s more Dovish comments and the relatively bullish jobs report the USD continues to weaken and the US stock markets continued to rally. From the February lows the S&P500 (SPX500) has rallied 11% (from 1818 to 2020) and the Dow Jones Industrial Average (USA30) has performed even better adding 2230 points from 15,590 to 17,820 a gain of over 14%. The Surging Yen this week has caused some selling off  in the equity markets but where do we go from here and is there any more upside potential in this rally?

Fundamentally, there is a lot of negativity around, US corporate profits are down, the last earnings season was poor and anticipation is for worse to come in the reporting season starting this week.  Also, many US stocks are trading on very high multiples. Sentiment too is uncertain, as there are continuing questions over the Chinese economy and the state of their Banks in particular, while the Oil market remains highly over supplied with weak global demand. This week we have had the risk-off rally as the Japanese yen (JPY) appreciated as much as 3.5% and the USDJPY fell to under 108, all this and a very uncertain US election ahead.

With a very mixed news and sentiment picture what do the charts tell us? Technically, for now the rally is still intact and has some support, however, there are signs that all the negative sentiment and what some see as a divided FED are beginning to take hold of the equity markets.

Our preference is for SHORT positions with the Target 1 at 15,950 from our entry levels around the 17,900 – 18,330 level and Target 2 at 15,300. The earnings season which starts today is anticipated to be poor and the market has already priced this in so any good news could likely rally the Dow from here. However, the downside is looking to prevail.