The $US30 index, also known as the Dow Jones Industrial Average, is a stock market index created in 1896 that monitors the performance of the 30 largest publicly traded companies in the United States.
The $US30 on a 30-minute timeframe has generally been trading in an uptrend and started a steady decline after the February 23 high of 39303.
It appears that the $US30 is showing a tendency to follow the 20 and 50-period simple moving averages, particularly the area between them. The chart illustrates that there are several instances where these moving averages have acted as solid dynamic support and resistance levels.
It is quite evident, even just on this small sample of the $US30, that classical chart patterns are respected (marked in magenta lines on the chart). On February 21, a triangle pattern formed, which convincingly broke to the downside, followed by a retracement and another 190 pip move down. The diminishing volatility on the ATR indicator just before the breakout is worth noting.
We observed a textbook head and shoulders pattern between February 22 and February 26. The neckline was broken by a strong and convincing bearish candlestick. This was followed by a retest of the neckline, which resulted in a fall of 370 pips. Again, it is worth noticing the diminishing volatility on the ATR before the downward move.
This brings us to the formation of the current chart pattern (Triangle 2), where the market shows a decreasing range by forming lower highs and higher lows. Additionally, the ATR indicator suggests that volatility is at a local low, creating a favourable situation for a potential breakout.
The potential breakout can be either upward or downward, but there is a slightly stronger downward bias due to the recent strong head and shoulders pattern.
A more conservative way to trade triangle breakouts is to wait for a clear and convincing breakout to avoid false breakouts. Once there is a breakout, you can wait for a retracement and then enter the trade. However, this method might cause you to miss out on some trades and potentially result in less profit, but with the added advantage of having fewer losing trades.
The alternative is to take the trade on the breakout. This way, you can enter at a more favourable price, which can lead to greater potential profit. However, there is also a higher chance of being caught in fake moves.
In the event of an upward breakout, the target can be 39,000 towards 39,100. In the case of bears leading the breakout, we can target the next support level at 38,685.
Keep an eye out for shifting investors' sentiment or changing fundamental factors.
Summary:
- US30 comprises the top 30 largest publicly traded companies in the USA.
- The US30 Respects classical chart patterns like triangles and head and shoulder patterns.
- The market is currently forming a Triangle pattern with diminishing volatility.
- A break to the downside could potentially target the 38,685 level.
- A break to the upside could target the 39,000 or 39,100 level.
