The Dow Jones index futures leaped higher this London morning as the DAX index rose sharply and steadily since the open. Hopes of the US striking a trade deal with China, or at least deciding to delay planned tariff hikes have also kept buyers busy. However, as the cash market is about to open, the Dow has stopped in its tracks and is overbought per one-hour Relative strength index (RSI14).
The Dow Jones is also close to reaching the median line of the long-term uptrend, the current level of the line is at 26876, and the median line as acted as support or resistance eighth times since May 2019. Seen from the risk-reward ratio perspective, the Dow is also overbought, as the nearest low and potential stop is at 26023, the October 10 low. All these factors suggest that we might see some profit-taking. If the index indeed trades lower, I suspect that the price might find support in the 26023 to 26420 interval, with the 2621 level being the sweet-spot as a blue-trendline of the longer-term uptrend is currently at that level.
Going forward, traders will keep an eye on developments between US and China, and the risk of a weekend gap is considerable as announcements on the progress of the talks will probably be made over the weekend.Download our latest quarterly market outlookfor our longer-term trade ideas.