Dow Jones Could Be Setting Up a Stimulus Unwind

Dow Jones futures are pointing to a flat open in the U.S. stock market but yesterday’s 410 point sell-off could be the start of a stimulus unwind. The deadline for a deal was set for today by House Speaker Pelosi but there is a possibility that the two sides will still be unable to reach an agreement.

InvestingCube's S&R Levels

NAS100

NAS100 (11163.8)

In Buy Zone

STOP

BUY

TP1

11479

TP2

11923

Pelosi’s spokesperson has said that she held further talks with Treasury Secretary Steven Mnuchin on Monday and the pair would meet again on Tuesday, with the official suggesting that the two were narrowing their differences. But, the window for a deal is closing fast and even if they agreed on a package, it’s possible that it could be blocked by Republicans after their $1.5 trillion offer grew to $1.8 trillion and has still not been seen as suitable by Pelosi and the Democrats.

Another headwind for stocks is the continued surge in virus cases in Europe and the U.S. Further restrictions continue to be imposed in Europe in a form of lockdown-lite but there is a chance of a full shutdown, such as the two-week “circuit breaker” being discussed in the U.K. The outlook for global GDP will have to be readjusted if the measures continue and there is no sign of further stimulus from other nations until year-end so stocks may see a correction.  

The Dow Jones has a busy earnings week ahead with numbers coming from Verizon, Coca Cola, American Express, and chipmaker Intel. Stocks have seen a lackluster earnings season in the first week of third-quarter releases and any negativity could also weigh on the index.

Dow Jones Technical Outlook

Yesterday’s bearish close in the Dow Jones looks like confirmation of a double top at 28,800 and the index could look for a move to test the 50-day moving average at 28,000, further support at the 27,570 level, which was a high in early June. A stop can be placed at 28,800 to protect from a reversal. 

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