Market Outlook

Are the US30 bulls gearing to make a charge?

There is an old saying in the market – “Don’t stand in front of a raging bull”, and when I look at the weekly chart of US 30, The Dow Jones Index, this saying could not ring more true. Despite all the political, health, supply chain disruptions (to name a few) ups and down of the recent year, since the low of the pandemic in March, the index just keeps on marching higher.

However, we know that the market does not march in one straight line, but tends to pull back to release some of the strong buying pressure, before resuming its upward trajectory.

On the weekly chart above, the market has once again pulled back into the buy zone, which is the area between the 10 and the 20 Moving Average (MA). I also see that the uptrend has been nice and steady with no erratic behaviour, all the MAs are fanning and in the correct order (10, 20, 50), and the momentum indicators, the MACD and the RSI, are converging to the upside.

Let’s drill into the lower timeframe and have a look at the daily chart.  

As the weekly timeframe was pulling back into the buy zone, the daily chart had a deeper pullback into the 50MA, and tried to continue higher, but failed to break the 34,500 level. It then pulled back again, though not as low as before, and charged back up into the 34,500 level, though once again was unable to break it.

A resistance level at around the 34,500 area – Equal Highs, and compression of price – Higher Lows has now formed.

With the higher timeframe in a strong up trend, I will be looking for a potential breakout opportunity to form. Currently I only have two touches at the level, and the reaction to the second touch at the level (the pullback) might not be complete just yet. I would prefer to see another touch at the level, and an even closer Higher Low for a tighter stop loss, before a potential break above that level.

Alternatively, if the bulls decide to break this level without another touch, then I will be looking for a decisive close above the level and a pullback to test it from above, potentially on a lower timeframe such as the 4 hour or even the 1hour.