Dow Jones Industrial Average (.DJI) signs are mounting for a correction in the short term
While the trajectory for U.S. stocks is still up, signs are mounting for a correction in the short term. We expect volatility to increase as the pace of earnings season picks up, tensions with Iran grow and the Federal Reserve prepares to take a key decision on interest rates.
All four major U.S. indices declined on Friday, ending lower for the week.
The S&P 500 fell following mixed comments from members of the Fed, with some appearing to favor a half-percentage point rate cut and others – including James Bullard – saying they backed a quarter-point June rate cut. Bullard’s comments sent yields and the dollar higher as he is considered one of the most dovish members of the Fed and if he’s supporting a 25 basis points cut, the odds of a larger reduction are low.
Geopolitics also played a role in risk off, after Iran’s Revolutionary Guard captured a British oil tanker in the Strait of Hormuz in retaliation for the U.K. seizing an Iranian tanker near Gibraltar. The moves heightened what are already increased tensions in the region.
Technically, Friday’s drop reinforced our view that the S&P 500 is ripe for at least a correction. Friday’s price action extended the penetration after the bearish evening star that developed the previous Friday through Tuesday, which brought the level below its short-term uptrend line. Also, a Friday close has more technical significance. The MACD’s short to long MA deepened its inversion, and the RSI completed the anticipated triple top. The uptrend will reverse when price action forms at least two descending peaks and troughs.
This week, 144 of the S&P 500 components and 10 of the 30 members of the Dow Jones Industrial Average are due to report earnings which should boost volatility. Last week’s earnings reports, with more than a third of companies blaming trade for weakening results, has investors bracing for more pain.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 26,463.18.
The projected upper bound is: 27,736.90.
The projected lower bound is: 26,618.97.
The projected closing price is: 27,177.94.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend (which appears to be the case with DJ INDU AVERG). It then signifies that the momentum may be shifting from the bulls to the bears.
If the engulfing bearish pattern occurs during a downtrend, it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 47.5529. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 64.72. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 2 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 60. This is not a topping or bottoming area. The last signal was a sell 2 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 6 period(s) ago.
Rex Takasugi – TD Profile
DJ INDU AVERG closed down -68.771 at 27,154.199. Volume was 3% above average (neutral) and Bollinger Bands were 11% narrower than normal.
Open High Low Close Volume___
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 27,116.18 26,210.55 25,508.35
Volatility: 9 14 20
Volume: 227,031,440 265,812,624 317,998,784
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
DJ INDU AVERG is currently 6.5% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of .DJI at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .DJI and have had this outlook for the last 26 periods.
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