E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Vulnerable to Reversal Top

June E-mini Dow Jones Industrial Average futures rallied on Friday, setting another record in the process amid strong earnings from blue-chip companies especially the bank stocks, which continued to rise on bumper quarterly earnings reports.

Morgan Stanley reported a 150% jump in quarterly profit on Friday, helping to boost the performance of Dow components JPMorgan Chase & Co and Goldman Sachs Group as investors continued to bet on a swift economic recovery.

On Friday, June E-mini Dow Jones Industrial Average futures settled at 34081, up 158 or +0.46%.

In other news, the University of Michigan said Friday its preliminary consumer sentiment index rose to a one-year high of 86.5 in the first half of this month form 84.9 in March. Additionally, Federal Reserve Governor Christopher Waller said Friday the U.S. economy is set to take off, but there’s still no reason to start tightening policy.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed on Friday when buyers took out the previous high at 33862. A trade through 34144 on Monday will signal a resumption of the uptrend.

A trade through 31951 will change the main trend to down. This is highly unlikely but due to the prolonged move up in terms of price and time, the Dow is ripe for a closing price reversal top.

We’re not going to guess when the pattern will form. We’re not going to sell a new high and hope for a lower close. We’re likely to let it form first then wait for the confirmation. The uptrend is strong so it doesn’t make sense to try to guess until we start to see evidence of sellers.

We do suspect, however, that the top won’t be formed by economic data, but rather a surprise event. Something has to happen that will create enough uncertainty to encourage the longs to start trimming positions.

Short-Term Outlook

A higher-high, lower-close will be the best sign that the selling is greater than the buying at current price levels. The next best sign will be a lower-low, which will make 34144 a new minor top.

A third sign of a top will be the failure to hold the minor 50% level at 33651.