The Dow Jones Futures (CME: YM) have entered the new year with a measured stance, maintaining a neutral position after a robust 14% growth in the previous year. The enthusiasm in the market has been tempered by a recalibration of expectations for Federal Reserve rate cuts in March. This adjustment, fuelled by unexpectedly robust manufacturing figures, has introduced an element of caution into the equity market.
On Wednesday, the S&P Global Manufacturing PMI revealed a figure of 50.3, surpassing the anticipated 47.9 consensus, while the Services PMI outperformed expectations at 52.9 compared to the consensus of 51. The CME FedWatch Tool now assigns a 43% probability of rate cuts in March, a notable decline from the 88% probability reported just a month ago.
However, the stage is set for potential shifts in market dynamics with crucial data releases on the horizon. Before the forthcoming interest rate decision next week, where trader insights will be shaped by accompanying commentary, attention is focused on key data releases. Firstly, the eagerly awaited GDP growth data will be released later today, followed by the highly anticipated PCE Price Index on Friday. These releases have the potential to steer directional price action in the US equity market as the week draws to a close.
Technical
On the 4H chart, an ascending channel failed to withhold the bullish momentum, resulting in a breakout, pushing the futures above the 25-SMA (green line), 50-SMA (blue line) and 100-SMA (orange line). However, a recent pullback has formed a descending triangle pattern, and the bears have pushed through the triangle support, signalling the potential for a new downtrend.
Support at 37,934 initially halted the selling pressure, but the bears are looking to push the price further down. Lower support at 37.851 could be crucial if that happens, while the 50-SMA (blue line) and 100-SMA (orange line) provide additional support near the Fibonacci midpoint of 37,805. If this support fails to initiate a retracement, the 61.8% Fibonacci golden ratio at 37,686 becomes a likely destination.
Conversely, if the support at 37,934 sustainably holds, the retracement could be triggered to retest the breakdown level at 38,027. If this resistance holds, it could trigger a sustainable downtrend. However, if the price moves back within the triangle, the 25-SMA at 38,092 could once again become a level of interest.
Summary
The Dow Jones futures have started the year off on a relatively neutral stance. However, it has become vulnerable to a sustainable breakdown from a descending triangle pattern, which could result in the formation of a new downtrend if the economic data due today supports the bearish sentiment.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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