09:13, 19 October

Drops Sharply Again and Eyes Off Support at 25000

In the last 24 hours, the US30 index has fallen sharply again and is trying to consolidate after heavy falls in the last couple of weeks. Only last week the index dropped down through support at 26200 and down to its lowest levels since mid-July before rallying higher back above the key 25000 level. After reaching a new all-time high a few weeks ago the US30 index had eased a little in the week after and was enjoying some support from the previous key level of 26200, however, this has now clearly given away to immense selling pressure. After enjoying some solid support from the 25000 level, the index had enjoyed several weeks of the strong movement pushing through the previous resistance level at 26200 and reaching the all-time highs. It is this level again that the index has enjoyed support off and may be looking for some ongoing support.

For several weeks last month, the US30 index had been content to trade within a narrow range near 2018 highs under 26200, before its recent move higher. The 25000 level had rejected the index on several occasions throughout this year. The 25000 level has been significant as it has offered lots of resistance and would have come as no surprise when it supported the index back in July and August. Around the end of June, the index spent several days consolidating above 24000 after a strong fall over several weeks prior to that. The fall saw the index move sharply lower from a three-month high above the resistance level at 25000 down to a near two month low several weeks ago.

In the second half of May the index was meeting stiff resistance right at 25000 which forced the index lower down to a three-week low. In the few weeks before last week’s easing lower, the index had moved quite strongly off the now well-established support level at 23500. This recent range trading is not unexpected after the strong movement higher throughout all last year.

Most of the selling in US stocks has been put down to worries about the U.S.-China trade war, rising interest rates and concerns over possible overvalued U.S. tech stocks. U.S. Treasury Secretary Steven Mnuchin also pulled out of a Saudi Arabia investment conference as traders worried a large global investor in the kingdom is coming under greater scrutiny. The interesting side story is that Chinese stocks are trading at four-year lows as rising U.S. interest rates and the likelihood of less favourable trade deals is potentially going to adversely impact Chinese companies profits next year. The low stock prices have increased fears that China's economy, the world’s second-largest, could be slowing down, which will ultimately drag down global growth. These worries intensified after European Central Bank President Mario Draghi said one of the risks for the economy was countries trying to circumvent EU budget rules. One other point of view on the market sell-off has been voiced by Goldman Sachs CEO David Solomon who believes it is the result of programmatic trading."There's no question when you look at last week, some of the selling is the result of programmatic selling because as volatility goes up, some of these algorithms force people to sell," Solomon said on CNBC.