US ISM Manufacturing PMI Data In Shock Drop: Dow Plunges

The US ISM Manufacturing PMI data reveal a worse-than-expected index reading of 48.1, as opposed to the market consensus of 49.2 and the previous reading of 48.3. Construction spending data also showed that the amounts that builders spent on construction projects fell by 0.8%, against the market consensus of a 0.3% growth and a growth of 0.5% in the previous month.

Traders on the Dow Jones Industrial Average have responded negatively to the news, and the Dow has plunged to 27,895 as at the time of writing and is still falling.

The drop in the US ISM Manufacturing PMI data show a clear contraction in manufacturing activity in the United States. The Institute of Supply Management, the agency which conducts the survey of business managers in the manufacturing sector of the US, also pointed out that new orders, supplier deliveries and raw materials inventories were all decreasing. The survey report also indicated a contraction of imports and exports as well as price decreases, which clearly show that the US-China trade spat is beginning to hit home. However, the overall economy grew for the 127th month, albeit at a slower pace.

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Technical Outlook for the Dow

In the long-term, the Dow Jones continues to trade within the confines of a long-term rising wedge, and today’s move reflects a rejection of price at the upper border of this edge, which limits the continued uptrend in the Dow.

On the daily chart, the price candle has violated the lower trendline of the ascending channel which has contained price activity in the last month or two.

Immediate support is seen at 27353, which is where the previous cluster of highs of July 15 to 23 as well as the previous high of September 23 are located. We need to see a definitive close of price candles below the channel (double candle close filter) for price to target 27,353. Further support lies at 26675. A breakdown of 27353 is required to target this area as well.

On the flip side, price recovery will take the Dow back into the channel, where it can be guided to attempt a run at new all-time highs above 28,200. With more US data lined up for the week, including this month’s Non-farm Payrolls report on Friday, there is an opportunity for such recovery to occur.

Traders should also watch out for more information from the US-China trade front.

Dow Jones Daily Chart

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