Dow Jones Closes in on Weekly, High but Risks for Correction is High

The Dow Jones is having a good week and is so far up by 1.45% since Monday. The determination of both the US and China to figure out their trade differences boosted stock markets as a Chinese commerce ministry spokesman on Thursday said both sides had decided to remove some tariffs “in phases.”

The move higher in stock markets has also been inspired by the Federal Reserve and ECB supporting the world economy by cutting interest rates, and the latter has also introduced QE.

In the short-term the Dow Jones retraced from a trendline that also capped gains in the index in September, and supported the index in July. Today, it looks like the bullish traders would like to revisit that trendline and likewise weekly high at 27777. However, the Dow Jones is overbought per the RSI-14 indicator as seen in the panel below, and a failure to take out the trendline might trigger profit-taking and cause a slide to the median line currently around the 27150 levels.

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Despite the index being overbought and the risk for a correction being strong, the stock market index might continue gain as the trend remains upwards. I think traders will opt to wait for a corrective decline to the 26911 to 27334 intervals, and might consider to add to their positions there before adding to their risk. However, if the price slides below the October 31 low at 26911, then the short-term might come to an end.

Dow Jones Index

Dow Jones Index Chart

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