Dow Jones Breaks Higher After a Bullish Flag Formation and Sets Eyes on New All-Time Highs

Dow Jones New York Stock Exchange
Dow Jones

Dow Jones bullish bias persists despite many voices calling for an imminent correction. While the Nasdaq 100 already made a new all-time high during the COVID-19 pandemic, Dow Jones failed to recover the lost ground so far. However, it broke higher out of a bullish flag formation and looks set for a run to the 30,000 level and beyond.

Strong U.S. Housing Data Keeps Dow Bears at Bay

The Existing Home Sales data for the month of July took the market by surprise. The U.S. sold 5.86 million houses, continuing its upward trajectory and increasing by 24.7%.

The housing sector is very important for an economy because it triggers ripple effects. When a new house is sold, the new owners usually remodel it, buy new furniture, and so on – triggering economic benefits for adjacent businesses. Therefore, strong housing data is viewed as a leading economic indicator pointing to economic recovery.

Lower mortgage rates certainly helped the sector. As the Fed lowered the federal funds rate to zero during the pandemic, it stimulated many households to rethink their situation regarding housing – not to mention that real estate businesses had better access to cheap capital.

Dow Jones Technical Analysis

The bullish flag mentioned earlier broke higher last Friday. Its measured move (the blue line in the chart below), projected from the breakout moment, points to a new attempt at the highs.

Flags are continuation patterns. During strong trends, the market takes a breather, consolidates levels for a while, and then the breakout comes. The longer the consolidation, the more powerful the price action after the breakout.

The only way to trade it here is to go long at the market and place a stop-loss order at the last low in the bullish flag’s formation (27,500) while targeting the round $30,000 level. The resulting risk-reward ratio is good enough to justify the trade.

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Dow Jones Daily Chart

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