Dow Jones
The Dow Jones Index closed above 35,000 for the first time on Friday, following stellar employment data. But are investors over-confident?
The Dow gained 163 points (0.47%) on Friday, achieving a record closing price of 35,210.
For once, the good news was good for stocks. Equity markets were lifted further into unchartered territory when Friday’s Nonfarm payrolls data came in better than expected, sharply decreasing the unemployment rate.
In July, the US economy added 943,000 jobs, much better than the consensus estimate of 870,000. Furthermore, June’s data was revised higher by 20,000.
This increase in labour market participation has dropped unemployment from 5.9% in June to 5.4% in July.
Not only did stocks rally, the Dollar and bond yields also strengthen considerably. This is surprising as typically, the Dow Jones price doesn’t respond well to rising bond yields.
Furthermore, if the jobs recovery continues, it may soon force the federal reserve to tighten monetary policy. This is possibly the biggest threat to risk assets. Although considering the rise in Delta COVID cases, fed chair Jerome Powell may choose to maintain the current course for the time being.
The daily chart shows the dow jones is attempting to break out of an ascending triangle formation. Although Friday’s close did penetrate the top end of the channel at 15,195, futures are lower overnight, and the predicted opening will be back inside the pattern.
However, should the index post a positive close in today’s session, this will confirm the bullish break and likely lead to systematic momentum buying.
Furthermore, the dow is above the 50, 100, and 200-day moving averages at 34,618, 34,247, and 32,430, respectively.
The Relative Strength Index (RSI) is fairly neutral. And its 57 reading doesn’t suggest the rally has over-extended.
Therefore the current outlook is positive. This will remain so as long as the price maintains the 100 DMA at 34,247. A rising trend line reinforces this support at 34,180.
Should the price close below 34,180, it becomes vulnerable to an extension lower to the 200 DMA at 32,340.
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