US indices rallied on Friday as a rebound in US treasury yields offered some relief amidst growing concerns over the global economy. A plunge in treasury yields had led to a yield curve inversion last week which spooked markets as it typically signals an impending economic downturn. In addition to that, China warned to take retaliatory measures against Trump’s decision to impose a new round of tariffs. While heightened trade tensions increases the chances that the FED would cut rates once again, it doesn’t alleviate the negative impacts of the trade war on the global economy. Separately on economic data, Michigan consumer sentiment figures came in lower than expected while housing data came in mixed. Today there are no major economic releases out of the US and as we see market participants shift the focus from one fundamental theme to another, expect news-driven momentum to lead the Dow; In particular trade headlines as recent reports suggest there has been positive talks between the US and China.
The Dow extended gains on Friday as it added 306 points to end at 25886. The price traded through resistance at 25685 and advanced towards the 25930 resistance level. There is resistance provided by the ascending trend line from August’s lows and from which a break above would lead the Dow towards the resistance at 26215. Look for a trade through the 26080 resistance level to enable gains to the 26215 level. However, failure to hold above the 26000 level would end the short-term bullish reversal and lead the Dow lower with a trade below the 20-period MA at 26790 required to target the lower support at 25685.
Resistance: 26080/ 26215