Talking Points
- Dow Jones Industrial Average (DJIA) closes up 5 days in a row to new all-time highs
-Fed rate hike expectations still low near 42% for December 2016
-Anticipating a continued move towards 19,700-20,000
Dow Jones Industrial Average closed up 5 days in a row which brings the 3 week gain to 6%. The fundamental driver has been lowered rate hike expectations which tend to favor equities. Fed rate hike expectations show 42% chance of a hike in December 2016 which is still quite low.
The price action for the past 3 weeks does support the outlook for further gains as it appears we are in a small degree 3rd wave. Third waves tend to be the longest and strongest of the 5 wave Elliott Wave sequence. Since the first wave printed from February 11 to April 20 and gained about 17%, we can anticipate this current wave from the June 27 low to gain in excess of 17% placing initial targets near 20,000.
Chart prepared by Jeremy Wagner
Though the forecast is for higher prices , we also need to consider price points where other lower probability patterns may suppress those bullish opportunities. There are some wave relationships that show up in US30, a CFD which tracks the DJIA , from 18,575-18,700. This price zone could offer some resistance.
However, let’s be clear, the trend is higher so we do not want to initiate short positions. The 18,575-18,700 price zone may buffer increases and if they do completely reject prices lower, then we’ll begin to consider other alternate patterns.
From a sentiment perspective, 10% of the retail traders are positioned long as indicated through the Speculative Sentiment Index. Typically, SSI is a contrarian indicator and suggests more gains are coming for US30.
The risk to the immediate bullish view can be placed near the June 27 low of 17,060. A short bias can be activated near 15,503.
Suggested Reading: Dow Jones Industrial Average Punches Back After Brexit Collapse
Interested in a longer term outlook for equities? Download our quarterly forecast here .
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---Written by Jeremy Wagner, Head Trading Instructor, EDU
Follow me on Twitter at @JWagnerFXTrader .
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