The Dow Jones index looks like it will start trading below the January 31 low, as the futures contract has struggled to retake the level during the European trading session.
That the Dow Jones is trading below the January 31 low opens up for further declines in the days ahead, however, the market is also oversold causing the risk-reward ratio for fresh short-positions to be poor. Trades looking to short-sell will probably wait for correction of yesterday’s slide.
Longer-term investors will probably wait and have their focus on the next strong support level. The level that I am watching is the December 3 low of 27326. Around the same level, we also find the 200-day moving average.
In strong uptrends, like the current one, we tend to get some reaction around the 200-day moving average. In August and October 2019, it helped to indicate where a major low could occur.
Also, the financial media tends to report on the Dow Jones trading below the 200-day-moving-average, and some see it as a sign to sell their stock holdings, but when the index swiftly slides below it from being at an elevated level, then it tends just to cause weak-hands to sell, and move higher follows as the panic reaches its maximum.
If the December low fails, to hold, then the next support level is the October 22 low at 26610.
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Dow Jones Chart with 200-day-MA
Economic data to watch
The Richmond Fed Manufacturing index for February will be published at 15:00 GMT, and it will be interesting to see if it will follow last week’s weak Markit PMIs or the better Philadelphia Fed PMI or Empire State PMI.
However, the main market mover remains the growth rate of coronavirus spread in Italy. At 12:13 GMT, the newspaper, La Repubblica.it, reported 283 confirmed cases, which is almost a doubling of the number of instances from yesterday morning. If the growth rate remains high, it implies that many more will be infected, and this could lead to a halt to the Italian economy, and the rest of Europe, if the virus spreads to France, Germany, and Spain.