Dow Jones Technicals – 2nd Highest Close reached

US stocks closed higher on Monday despite the initial sell-off due to China’s tightening measures. Defensive stocks managed to claw back early losses to pull the rest of the market higher, closing at 37 points below record close of 14,164.53 back in 2007. Investors and speculators alike interpret the latest policy changes, which includes a 20% capital gains tax on sales of existing properties, higher down payments and mortgage rates, as a defensive move from China to prevent bubbling of assets – definitely beneficial for the long run. As such, they were willing to throw caution to the wind and buy back the stocks they have shorted earlier, leaving prices at where they are currently.

Daily Chart

From a technical point of view, though prices have managed to maintain above 14,000, the bullish sentiment of the market is not apparent with the current close still lower than the previous peak formed on 28th Feb. Support can be found below 14,000 in the form of rising Channel Top that provided support back on 26th Feb. Currently there is not evidence that price will be able to break higher, with Stochastic readings actually looking to dip lower despite the current candle being much more bullish than the previous 3 candles.

Hourly Chart

Shorter term chart shows the same issues, with a ceiling forming on the hourly chart just under the previous swing high on 1st Mar (28th Feb EST). Stochastic readings have also reached Overbought regions and appears to be moving lower. Support can be found along the rising trendline which has been respected twice on 1st Mar and 4th Mar. As such, the threat of bears are not immediately obvious, but bearish momentum/bias may need to be considered should price break below the rising support, opening up 14,000 and 13,950 again, with a break below 13,950 opening up 13,750 for a 100% reversal.

Fundamentally there isn’t much bullish or bearish news other than US Payrolls numbers due on Friday which may inject volatility into the markets. Investors seems to have digested the sequester cuts relatively well (though verdict is out whether they are anticipating any sort of grand bargain between Dem and GOP). Earnings session is also almost over, meaning we should not be seeing any more corporate surprises that can move market ala Apple back in early Feb. As that is the case, we may see higher likelihood of support/resistance lines being respected as traders stay on the side line to wait for further direction.

More Links:
EUR / USD – Continues to Find Comfort in the 1.30 Level
AUD/USD – Rallying Back to the Key Level at 1.02
GBP/USD – Enjoys Rock Solid Support at 1.50

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