- The Dow Jones Industrial Average pulled back rather significantly later in the day after initially rallying due to a weaker than anticipated PPI number.
- Traders had hoped for cheap monetary policy after that initial announcement, and we have in fact seen the idea that rates would drop come into the psyche.
- That being said, we have since pulled back as the 37,500 level has offered a significant amount of resistance, an area that has been very difficult to overcome.
Pull Back Offers Value
It’s likely that the pullback has offered a bit of value, perhaps even allowing the Dow Jones Industrial Average to reach down toward the 37,000 level, which is an area that I think would be very important. All things being equal, this is a market that I think will continue to be very noisy and therefore I do think that you have to be very cautious with your position sizing. Regardless, this is a scenario where I think we need to look for bits and pieces of value and take advantage of it. Clearly, you cannot be a seller of the Dow Jones Industrial Average anytime soon, and with all of the stimulus spending that’s going into infrastructure in the United States, it is probably only a matter of time before it shows reason enough for these stocks to truly take off to the upside.
The Dow Jones Industrial Average, like many other indices in the United States has been overbought, so I think a little bit of sideways action probably helps the longer-term outlook. Given enough time, if we can break above the 37,800 level, I believe that this market would more likely than not good looking toward the 38,500 level. A breakdown below the 37,000 level could possibly open up a move down to the 36,500 level, an area where we are starting to see the 50-Day EMA come into the picture. I am a buyer of pullbacks and would love to see a huge one at this point in time in order to offers substantial value.
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