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Analysis

Chart of the week – US 30 may see mean reversion rebound after Black Friday massacre

Chart of the week – Dow Jones Industrial Average (US 30)

US 30 may see mean reversion rebound after Black Friday massacre  

Short-term technical analysis

Time stamped: 28 Nov 2021 at 1:00pm SGT (click to enlarge chart)

Source: CMC Markets

  • The emergence of the new Covid-19 variant, Omicron has triggered an adverse domino effect on risk sensitive assets on last Friday, 26 November; started off with the USD/JPY In early Asian session and spread to the rest of the global benchmark stock indices as well as oil and cryptocurrencies. The main triggers for such a wide scale sell off have been sketchy information about Omicron where several medical experts have warned that it is more transmissible than the Delta variant and may evade vaccine-induced protection and “thin liquidity trading” environment during Thanksgiving holidays that could have exuberated these downside movements.
  • The Dow Jones Industrial Average (US 30) was one of the worst hit among the major US benchmark stock indices where it declined -2.53% on last Friday’s shortened session due to its heavier weightage concentration in cyclical stocks such as Industrials and Financials. The -2.53% drop was its steepest daily loss recorded since 28 Oct 2020.
  • Based on Elliot Wave/fractal analysis, the price actions of Dow Jones Industrial Average (US 30) may have completed its multi-month medium-term uptrend phase; impulsive wave (3) structure from 30 October 2020 low to its current all-time high of 36,564 printed on 8 November 2021. Hence, the US 30 now faces the risk of a multi-week corrective wave (4) decline to occur which is likely to retrace some degree (23.6% to 38.2%) of the prior entire bullish impulsive wave (3) structure.
  • Last Friday, 26 November steep decline seems to have completed or near the process of completion of the first down leg of the potential multi-week corrective wave (4) decline as the steep decline has seen a minor 5 wave sequence (i, ii, iii, iv & v) with Fibonacci retracement and expansion levels that clustered at the 34,500/34,110 zone which confluences closely with the swing low support of 13 October 2021 and the 200-day moving average. Thus, a short-term rebound to retrace a portion of the current steep decline from 8 Nov 2021 high of 36,564 cannot be ruled out at this juncture.
  • In addition, the 4-hour RSI oscillator has declined towards an extreme oversold level of 19% which indicates that last Friday’s decline has been overstretched and may see at least an imminent short-term mean reversion rebound for price actions to revert back to a zone of “statistical normality”.
  • Watch the 34,110 key short-term pivotal support and a break above 35,150 is likely to reinforce a potential short-term mean reversion rebound towards 35,900 resistance before the risk of another corrective decline sequence unfolds to complete the potential down movement corrective wave (4).
  • On the other hand, a 1-hour close below 34,110 invalidates the mean reversion rebound scenario for another round of waterfall slide towards the 33,600/33,300 key medium-term pivotal support zone.

 

 


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