Dow Jones Futures Higher, Profit Taking on USA-China Tensions Would not Surprise

The Dow Jones futures point to one more positive start despite the escalation in tensions between USA and China. China is planning to impose a new stricter security law in Hong Kong. The move might spark a new round of pro-democracy protests and a stand-off that we saw last year. Hong Kong administration in a move to calm investors said that the new law would not alter the civil liberties. In the USA, the House of Representatives yesterday passed legislation for sanctions against Chinese officials for the detention of Uighur Muslims. China’s Foreign Ministry warned that it would retaliate against any sanctions imposed.
Stocks and risky assets boosted by optimism over the reopening of the economy and fast recovery as the coronavirus cases drop across the globe.

In our trading calendar, the main dish is the weekly jobless claims, with expectations at 2.12 million for the week ended May 23 below the previous week reading of 2.44. The second reading of Q1 GDP will also be released at 13:30GMT with market consensus point to a 4.8% annualized contraction. April durable-goods sales are expected at -18.2%, while the core figure is expected to drop 15%.

American Express Co. finished yesterday 7.33% higher at 101.23, Goldman Sachs +6.94% at 209.66, JPMorgan Chase +5.79% at 101.37 and Caterpillar +4.27% AT 158.15.

The Dow Jones futures are 0.65% higher at 25,701, S&P 500 futures are 0.27% higher at 3,043, while Nasdaq futures are -0.31% lower at 9,402.

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Fear and Greed Index Enters Greedy Territory

The fear and greed index enter greedy territory as it moved from 52 the previous week to 54 this week amid the rally in stocks around the globe. The reopening optimism boosted investors sentiment.  

The put/call ratio in CBOE is at 0.70 implied that investors had shifted their attention mostly on call options. The CBOE Volatility Index (VIX) or fear index ended yesterday 0.14% higher at 28.05.  

Dow Jones Price Forecast

Dow Jones futures are 0.63% higher at 25,692 as the bullish momentum gains traction above the 100-day moving average that breached yesterday. I will not be surprised if the index test today the 100-day moving average, to see the strength of the bulls. The technical outlook is bullish now for the medium term, and an attempt to 200-day moving average can’t be ruled out. 

On the upside, first resistance for the Dow Jones futures stands at 25,794 the daily top. A move above 25,794 might test 26,250 the 200-day moving average. If we have an extension of the rally, then the next hurdle for the index is at 26,953 the high from March 5.   

On the other hand, initial support for Dow Jones futures is at 25,520 the daily low. Next strong support for the Dow Jones will be met at 25,299 the 100-day moving average. A break below 25,299 might open the way for a test of 24,386 the low from May 26.     

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