Below is the weekly chart of FXCM's Dow Jones Industrials CFD, US30. The weekly time frame is instructive as it suggests the direction of the primary trend. However, the market's underlying fundamentals heavily influence this longer-term trend. With this in mind, we note with concern that the US30 (left) has charted a lower peak (LP) followed by a lower trough (LT). This market action defines a downtrend and is considered a bear market. While not lasting as long as bull markets, bear markets move much faster and quickly destroy value. This speed is because the dominant emotion of a bear market is fear, which may cause panic selling. However, we acknowledge that the market has a bias to move up. This positivity means that the period immediately following a bear market is inherently lucrative, albeit exceptionally difficult to identify.
To this end, we must identify swing lows to capitalise. The US30 (right) has a support zone between 33,200 and 33,500 (green shaded horizontal). Last week, bears sold the market down heavily but lost control to bulls at the week's low. However, the bulls have not been able to exploit this week, and there has been no follow-through above last week's high (turquoise horizontal). Nevertheless, although the bulls have not benefitted, neither have the bears. This week's candle (still to complete) is an inside period, i.e., it has not made a lower low nor a higher high, but rather trades within last week's range. This pause is inherently a candle of uncertainty. The fact that the bears have not been able to take the US30 lower, given the invasion of Ukraine, and the emotion of fear associated with a risk-off sentiment, is intriguing. As such, we continue to monitor for bullish follow-through. A swing low will have charted if the price does take out last week's high. This appreciation would be considered a bullish development. However, caution will still be the order of the day until the primary trend can make a higher trough followed by a higher peak.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.