US30 index looks overbought after exciting rally

The US30 index (Dow 30) has completed four strong bullish weeks, with the price advancing above the 200-day simple moving average (SMA) to top at a two-month low of 32,965 last week.

The market has trimmed a small portion of its gains this week after finding strong resistance around the ascending trendline drawn from the record high of 36,950. From a technical perspective, the weakness could persist as overbought signals in the RSI and the stochastics may encourage profit-taking activities.

Still, the 61.8% Fibonacci retracement of the previous downleg at 32,468 could reject the bearish scenario, but a decisive close above the 32,800-33,280 constraining zone will be needed to bring the bulls back into the driver’s seat. If that turns out to be the case, the price could rally towards the 34,00-34,279 resistance region. A sustainable move higher from here would officially violate the 2022 downtrend.

Alternatively, a step below the 200-day SMA could trigger a sharper decline towards the 31,830 handle. Even lower, the 50% Fibonacci of 31,430 and the 100-day SMA may avert any depreciation towards the shorter-term SMAs and the 38.2% Fibonacci of 30,760.

In brief, while overbought conditions are currently favoring the bears, traders may not take additional selling actions in the near term unless the index dives below 32,468.

About the author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics. Previously, she earned a bachelor of science in Economics from the University of Cyprus. Apart from foreign exchange markets, her research interests include the impact of International trade on labour markets and product development.