US indices ended deep in negative territory as they extended their sell off on Monday to record their sharpest declines of the year. The Dow ended 2.90% lower as China took measures to retaliate against President Trump’s additional tariff threat. The second largest economy indicated it would stop purchasing US agricultural products and sharply weakened its currency against the dollar in order to counter the potential impact of increased tariffs from the US and challenge US exporters that wouldn’t benefit from a stronger dollar. The series of events have led fears of further escalation in the US-China trade war to dominate market sentiment. In terms of data, the US ISM non-manufacturing PMI came below expectations however had a muted impact as markets’ focus remains on trade headlines. Much like yesterday’s data, The release of US jolt job openings should have a muted impact on price action as the latest series of trade developments have led fears of further escalation in the US-China trade war to dominate market sentiment and concerns.
The Dow declined by 767 points to end at 25717. The index broke through the trend line support from the December low and dipped below the 200-day MA at 25540 to record an intra-day low of 25466 from which it had pared some of its losses. Futures are pointing lower this morning and a trade through the 25000 level would lead the Dow to test the support at 24800 followed by 24604. The latter level represents a main bottom on the Dow’s wider bullish trend, which if broken may lead to a wider bearish development. The daily RSI reading fell deeper into oversold territory suggesting bearish momentum has yet to stall. Look for a sustained move above 25760 to indicate buying pressure and lead to a test of resistance at 25950. On the other hand, a sustained move below the 200-day MA at 25540 would indicate selling pressure and lead to a test of the 25200 and 25000 level.
Resistance: 25760/ 25950