You’ve probably realized that since the spot US market opened yesterday, every single index or stock have been heavily bought: just for giving you a better idea of the strength of the movement, DJ30 gained around 1800 points in less than 24 hours, rising from a low at 24.555 to a high at 26.330. That is a 7.3% gain.
In case you missed the reason for this, it has been the FED once again: probably scared by a 3 days decline streak in indices valuations (the worst week since March 2020) and eventually driven by a loose interpretation of its mandate -focus on inflation and full employment- it stepped in with a new emergency measure.
Now, Powell & Co. will directly purchase individual corporate bonds of companies that -at least- were not junk before the Covid crisis started; they will do this in the secondary market (where trading happens after the issuance). Easily said, the debt on which companies rely will be centrally bought and helped, is already becoming more valuable and this will improve the balance sheets ratio and the possibility of further leveraging through more debt.
However, let’s move forward, without making any moral considerations about all of these deployed tools, and focusing only on what we are interested in: assets, charts and technical levels. DJ30.
The above chart shows the price action since 2018: it’s interesting because the vast majority of the time DJ30 has been trading within a band -let’s say within 24k and 27k- with some extensions above and below. In both cases, price has rapidly come back to this wide range: last time it happened this year and it happened from both sides.
The darkest MA is the 200 EMA, the lighter one is the 66 EMA: you probably know the importance for the long term trend of the 200MA and you could easily see that during the last couple of weeks the fight between bulls and bears has taken place around it. Few days above it, rejections and today a perfect retest from the downside -rejected once again.
Zooming into the 4 hours chart, focusing on this year roller coaster: after recovering from the extreme lows on 23rd March, price has immediately entered an ordered upside trading, within a channel and is still in it; after the first week of April it was already above the main MAs, showing a healthy and strong behavior.
Coming to these days and June, DJ30 set a high at 27350 while being quite overbought as for RSI indication, touched the higher bound of the channel and what could be considered an hypothesis of a downtrend (still to be confirmed obviously, but could work well for our trading purposes).
The last leg, the one started yesterday is to the upside and on this 4h chart looks like there could be more room to the upside, at least close to 26.900 (will also meet the upper BB here ).
Finally, our sentiment is that the momentum could eventually continue for a few hours / days and push toward a break of 26.350, taking DJ30 to trade close to 26.900 (or even overshoot to 27.400). However, in the case we will see the price at these levels, it would be nice to try to sell the index with a stop close to 27.700: there’s some signals -like the first break of the steepest red dotted trend, the cross in MACD and don’t forget the very important 200 EMA daily hurdle- that make us quite cautious about further consistent gains in the mid-term.