Dow Jones – Huge Bearish Divergence, But Can It Still Rise?

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Written By: Mircea Vasiu

Dec 16, 2020, 11:45 GMT 11:45

S&P 500

Summary:

Dow Jones close to all-time highs ahead of the Fed. The index formed a huge bearish divergence, but bounces from every dip so far.

Ever since Election Day at the start of November, the Dow Jones index jumped higher and higher. Fueled by a weak USD and the rollover of vaccines against the COVID-19 pandemic, the Dow stretched to record highs.

With only a few hours ahead of the Fed’s decision, the index pressures the highs. However, there is a huge divergence with the RSI, visible to all market participants. Also, the price action resembles a rising wedge.

Can the Dow still move higher despite the bearish signs? The answer is yes, but it will need a different reasoning for that.

The Fed’s decision later today is the last important economic event of the year. Starting with Monday, equities will be in the driving seat, as the currency market’s volatility should decline as we head toward the December holidays. Next Monday, Tesla enters the S&P500 index, an event that may drive volatility higher on the stock market.

Dow Jones Technical Analysis

At this point, though, the Dow looks stretched. Before selling, bears should wait for the market to break the series of higher lows. In doing that, it confirms the bearish divergence and the potential rising wedge. On a move below 12,800, bears should remain short with a stop at the highs and a 1:2 risk-reward ratio.

Dow Jones Price Forecast

Written By: Mircea Vasiu

Mircea, MBA in International Business graduating Magna Cum Laudae, trades for a living and contributes to various financial publications for more than six years. He writes about macroeconomics, stock indices, currencies, and most recently ETFs and individual stocks. For the past decade, he’s involved in everything trading related, mostly in the currency market, both with manual and algorithmic trading.