Dow Jones Price Outlook:
Dow Jones Price Outlook: Index Forfeits Winning Streak
The Dow Jones Industrial Average snapped its 6-day winning streak on Tuesday after an early rally lost steam as the session progressed. During the streak, the Industrial Average climbed roughly 5% to undo some of the pain witnessed during May’s selloff. The Index now boasts a 11.7% return in the year-to-date. As Wednesday approaches, bulls will have to surmount an ascending trendline to the topside around 26,270.
Dow Jones Price Chart: Daily Time Frame (December 2018 – June 2019) (Chart 1)
The February-based trendline provided buoyancy throughout the first quarter before price broke beneath. Since then, it has provided a barrier to topside moves, refuting moves on Monday and Tuesday. Should bullishness return and the trendline is dispensed, the Index may set its sights on 26,500 before targeting May highs. Below the current Index price, 25,800 will look to provide support – before secondary levels around 25,500 come into play.
Many market commentators asserted trade war remarks made by President Trump early in the session were behind the rally’s burnout, but as is often the case, multiple factors were at play. Aside from trade wars, Boeing (BA) announced several 737 Max cancellations during May – denting revenue the Industrial Average’s largest component.
Tangentially, aircraft manufacturer United Technologies (UTX) shed nearly -4% after an announcing it will merge with Raytheon. Together, the two companies weighed on the Dow – undoing minor gains from Caterpillar (CAT), Cisco (CSCO) and Apple (AAPL). With a relatively dry week for data, the Dow Jones will continue to weigh broader-economic themes with single-stock concerns heading into Wednesday. That said, IG clients are convinced June’s equity rebound is overdone.
Retail trader data shows 33.0% of traders are net-long with the ratio of traders short to long at 2.03 to 1. In fact, traders have remained net-short since June 3 when the Dow Jones traded near 25362.0; price has moved 2.7% higher since then. The number of traders net-long is 8.2% higher than yesterday and 12.5% lower from last week, while the number of traders net-short is 1.6% higher than yesterday and 7.5% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Wall Street prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. As market themes unfold and traders reposition accordingly, follow @PeterHanksFX on Twitter for technical and fundamental updates equity markets.
–Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
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