Dow Jones: Possible Head and Shoulders Puts Pressure on the Index

Summary:

Dow Jones looks weak here as it may form a head and shoulders pattern. Contrarian traders have an opportunity to sell the index short.

The Dow Jones index met strong resistance at the 35,000 level, and now the futures point to more weakness. The move lower was fueled by the Nasdaq 100 index having a rough start of the trading month.

Last week’s NFP report showed that the US economy added fewer jobs than the market expected. However, it was not because of the economy’s inability to create new jobs but because of the people not willing to work.

As it turned out, many people receive more unemployment benefits than they are being paid to get a job. As such, they turn down job offers in the hope they will get a better wage.

Indeed, this is a recipe that will lead to wage pressures, which, in turn, leads to higher inflation. Higher inflation weighs on the currency, but higher inflation may also spook the stock market.

In the grand scheme of things, the current move lower looks only like a correction. However, contrarian traders may have a bone to trade here, despite the setup being riskier.

Dow Jones Technical Analysis

Bears may want to sell short the Dow Jones against the highs, with a partial profit at 34,200 and the final target at 33,800. Remember that this is a contrarian view that goes against the main market trend.