US30

10:47, 31 October

Drops to Four Month Low and Eyes Off Support at 24,000

In the last couple of weeks, the US30 index has fallen sharply again down to its lowest levels in four months, after attempting to rally off support at 25000 a few weeks ago. If the index continues to fall lower, the next obvious level for some potential buying is around 24000 which supported the index well back in June sending it higher to its recent all-time highs. Only a few weeks ago the index dropped down through support at 26200 before rallying higher back above the key 25000 level. The 25000 level is now likely to offer some resistance again to the index. After reaching a new all-time high several weeks ago the US30 index 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.

 

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.

The markets have long been expecting the U.S. Federal Reserve to go through with a 25 basis point increase in its benchmark funds rate at the year's final Federal Open Market Committee Meeting. The ‘Fed’ has raised its benchmark interest rate target three times this year and is on track for a fourth in December. Current projections from the Federal Open Market Committee (FOMC) members point to three more increases in 2019 and one or two more in 2020. After considerable market volatility in October, traders have reduced their probability of a December funds rate rise from 87% down to 74% in the last week, according to CME data. The probability of a March 2019 increase is down to 48% from around 62% a week ago. Atlanta Federal Reserve President Raphael Bostic said that the risk of a powerful economy overheating is the reason the Fed should stick to its schedule of interest rate increases. With the unemployment rate currently at 3.7% and significantly below what is considered full employment, the Fed has to weigh the risks of tightening too quickly and choking off what has been a robust economic run, and waiting too long and risking runaway price pressures."And while I wrestle with that choice, one thing seems clear: there is little reason to keep our foot on the gas pedal," Bostic said in a speech in Louisiana. "After digging through the data, consulting our economic models, and gathering a Main Street perspective from our extensive network of business contacts, I come away with the sense that economic growth is on a strong trajectory," he said. "It's on solid footing and hasn't been materially pushed higher or lower.