Dow Jones Index: US Retail Sales Set to Spur Volatility

Dow Jones Index Technical Analysis

On the 4-hour chart, the price is in a bullish trend but showing signs that bears are getting stronger. The US30Cash made a high near the 43162.50 level before pulling back. Initially, it had been making consistently higher highs and lows, respecting the 22-SMA line as support.

At some point, the price entered a period of consolidation between the 41852.56 support and the 42358.67 resistance. However, bullish momentum soon surged, breaking above the range resistance.

The price fell after the most recent high and punctured the 22-SMA support line. This is a sign that sentiment is shifting to bearish. However, the RSI trades in bullish territory above the pivotal 50 line. Moreover, the price must break below a few more support levels to confirm a reversal.

The first significant support is the bullish trendline. A break below this trendline will show that bears are getting stronger than bulls. Another significant support is the 42358.67 critical level. A break below this level will make the first lower low, signalling a downtrend. From there, the price will likely continue falling.

However, if neither of these significant levels is broken, bulls will return to challenge the 43162.50 high. A significant catalyst like the retail sales report could lead to a continuation of the bullish trend or a reversal.

The price is trending up on the daily chart and recently made a new high. However, while the price is climbing, the RSI has made lower highs, signalling a bearish divergence. This divergence shows that bullish momentum has weakened. Therefore, the price might pause for a consolidation or reverse to the downside.

If the US30 Cash starts ranging, it might trade between the 43105.87 resistance and the 40266.55 support level. Furthermore, if bulls return stronger, the price will seek new highs above the range resistance.

On the other hand, the bearish RSI divergence could lead to a reversal. In such a case, the price would break below the 22-SMA to challenge the 40266.55 support level. A break below would start a downtrend with lower lows and lower highs.

Key Support Levels

Support 1: 42358.67, a 4-hour chart swing low and range resistance level

Support 2: 41852.56, a 4-hour chart swing low and range support level

Support 3: 40266.55, a daily chart swing low

Key Resistance Levels

Resistance 1: 43105.87, a daily chart swing high

Resistance 2: 43162.50, a 4-hour chart swing high

Dow Jones Index Fundamental Analysis

The Dow Jones Index has made record highs as markets cheer the start of the Fed’s easing cycle. Notably, the US Central Bank cut interest rates by 50-bps in September, boosting prices. Furthermore, policymakers maintained a dovish tone, indicating confidence that inflation will reach the 2% target.

However, sentiment shifted with incoming data. The US economy has remained resilient. Ideally, a healthy economy is bullish for stocks. However, when it slows the Fed’s easing cycle, borrowing costs drop at a slower rate. Therefore, relief for businesses is delayed.

Market participants await the US retail sales report for further insight into the Fed’s policy outlook. Economists expect sales to increase by 0.3% in September after a 0.1% increase in the previous month. Meanwhile, they expect core retail sales to hold steady at 0.1%.

An unexpected jump in sales will indicate robust consumer spending. However, it will increase the likelihood of a Fed pause at the November meeting. Futures markets show a 95% chance of a 25-bps rate cut. This value would drop, leading to a decline in the Dow Jones Index.

On the other hand, a downbeat report would boost November Fed rate cut expectations and likely cause a price rally.

Final Thoughts

The Dow Jones Index is on a solid rally and has reached all-time highs. However, technical charts show weakness in the uptrend. The retail sales report might boost bullish momentum to continue the uptrend. However, if it increases the likelihood of a Fed pause, it could be the catalyst that reverses the trend in the smaller time frames.

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