08:35, 12 December

Looking Vulnerable Below Key 25,000 Level as Fed Changes Tune

Volatility has increased in the US30 index as it has fallen sharply again down through any support at the 25,000 level and down to its lowest level in over six months. A couple of weeks ago it enjoyed a healthy surge higher climbing back above the key 25,000 level to above 26,000 before reversing sharply and falling lower. The last couple of months have now seen the index moving sharply between 24,000 and 26,000 as the volatility and the swings back and forth have intensified and presented the most volatile the index has been in many months. The significance of around the 26,000 level remains, as again it has formed classic reversal candlesticks at this level before reversing and falling just as strongly as it climbed.

For several weeks in September the US30 index had been content to trade within a narrow range near 2018 highs under 26200. 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. 

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.

Last week it was reported that the U.S. economy added 155,000 jobs in November, however economists polled by Dow Jones expected a gain of 198,000 jobs. Wage growth also missed estimates, however the bigger concern was the data possibly signalling fewer rate rises from the Federal Reserve in the future.Some would argue that whilst the jobs report was not great, it was still solid and therefore it will keep the Fed on track for its rate rises.  However talk continues to dominate market commentary that the Federal Reserve have softened their stance and may not raise rates throughout 2019 as they have been hinting at for some time now.  As recently as last Friday, the central bank has hinted at an interest rate rise in the “near term” however not as certain for 2019.  Federal Reserve governor Lael Brainard spoke last week at an event in Washington, and said the economic picture was broadly positive but that risks were growing in the corporate debt markets at home and overseas. “The gradual path of increases in the federal funds rate has served us well by giving us time to assess the effects of policy as we have proceeded," she told the audience. "That approach remains appropriate in the near term, although the policy path increasingly will depend on how the outlook evolves.”