Dow retests 200-day SMA once again

USA30, H4 and Daily

Markets are firmly back in the grip of risk aversion, and Treasury yields corrected as the stock sell off continued during the Asian session. Therefore, US equities have rotated lower after a brief opening in the green, with the majors all now underwater. The slide is seen ahead of key earnings reports this week, which together with political jitters are clouding over the outlook.

Tensions surrounding the killing of a Saudi journalist, midterm elections in the US and continuing US-China trade tensions are just some of the risks weighing on confidence and leaving stock markets in particular very volatile, especially Chinese stocks. Meanwhile, information technology is a standout on the upside, seeing solid gains as the Nasdaq bucks the declines evident on the USA30 by -0.7%  and USA500 by -0.5%.

As has been noticed, investors are focused on the political scene and the negative fundamental news (trader war, Fed rate hikes, rising costs etc) rather than the decent Q3 earning season so far. Therefore as the earning season picks up, investors continue to give signs of worry regarding the global growth. The USA30 was pulled back to the lows of 25,000 area, falling so far 283 points, or nearly 1% down to 25,026.4

After the slight rebound seen yesterday after China made fresh moves to stimulate its economy, the doji bearish closing yesterday by forming 4 consecutive lower high and the sharp drop today below the 200-day SMA , turned USA30 from neutral back into the negative outlook in the medium-term. This is the 3rd time that the price action challenges the 25,000 key level, suggesting that the bearish momentum increases for the asset.

Last Wednesday, the market reversed from 25,860 and left this level as a lower high, below all times high at 26,952 October 3, however only a close below the mid-point of the rally seen from 23,128.3 low but more precisely below the round 25,000 level, would turn the attention further to the downside. This could imply that October’s decline is not just a correction in this long-term incline, but a sharp reversal southwards.

Momentum indicators also comply with the negative bias scenario as they are negatively configured. RSI is at 33 looking lower, while MACD increases dramatically below the the signal line, suggesting that pressure getting stronger into the downside.

The same negative picture is also held in the intraday charts as lower Bollinger Bands pattern is extended to the downside in both 1-hour and 4-hour chart, as indicators are moving lower.

On the break of 25,000, the next immediate Support level is at 61.8% Fib. level at 24,740 and the medium term Support is at 24,550. Resistance levels come at 25,600 and 25,860.


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Andria Pichidi

Market Analyst


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