US indices suffered massive losses on Wednesday as fears of a US recession inspire risk-averse flows. A yield curve inversion is perceived to be a reliable indicator of an upcoming economic slowdown which is what spooked market participants yesterday as the yield on the 10 year treasury notes fell below the 2 year treasury notes. Now that economic health becomes a dominating theme, we should see attention drawn to a slew of economic data today as it provides insight into the US’s economic performance. The prospect of monetary policy support in the face of an economic slowdown may not suffice to improve sentiment as the global growth outlook further deteriorated after Germany’s economy showed contraction and China’s industrial production figure reached a record low. Today, traders should look to retail sales data to have a strong influence on price action as it reflects consumer spending as well as Philly Fed Manufacturing Index, NY Manufacturing index, jobless claims and industrial production.
The Dow Jones Index tumbled by 3.05% to end 800 points lower at 25479 on Wednesday. The bulls failed to exceed the resistance at 26400 and the Dow turned sharply lower to break the trend-line support and record a low of 25406. Look to the 200-day MA at 25580 to determine near-term direction on the Dow, as a sustained move below this level would maintain selling pressure while a break below the support at 25400 would lead to further declines towards the 25200 level. On the other hand, a sustained move above 25580 would indicate buying pressure and lead price towards the resistance at 25680.
Resistance: 25580/ 25680