US indices soared on Monday after the weekend news revealed US and China reached a trade truce and refrained from imposing additional tariffs on one another. The upbeat news catalyzed the Dow to its session high before economic data prompted a retreat. The US ISM Manufacturing index, a lead indicator for economic activity, came in better than expected however declines to reach a three year low. It is among the most recent data to show economic growth slowing in the second quarter and while it supports the case for markets’ favored rate cut, it highlights the burden of global trade uncertainty on the US economy. With no major economic releases to provide direction, today will be a test to the support recent trade optimism can provide market participants with.
The Dow opened with a surge of 285 points to exit its consolidation phase before it parred early gains and ended 0.44% higher at 26717 on Monday. The index failed to hold its session’s high and recorded a lower intra-day high at 26885 since reaching 26912 last month. The price reverted back to the 20-period MA around the support of 26660 however held above it indicating a potential higher move. We will look to the 20-period MA to provide near-term direction with a sustained move above 26750 required to indicate buying pressure and re-test the highs. Should 26660 fail to provide support, the Dow would be at risk of a break below the lower bound of its recent ranging period at 26500 with a decline below the support at 26580.
Support: 26660/ 26580