11:20, 13 February

Enjoying Support from Key 25000 Level as Fed Shifts to Patient

Over the last week the US30 index seems to be content to have consolidated in a narrow range right above the significant level of 25,000 allowing it to move to a two month high today. A couple of weeks ago this level offered some resistance to the index however this was quickly broken through, only for the level to prop up the index since.
For the last few months, the two key levels of 24,000 and 25,000 have been playing a role and influencing price action. In the last six weeks or so, the index has done very well to move back within the range between these two levels, after falling to its lowest levels in 18 months below 21,500. It met some resistance at 24,000 before moving through.

December was several weeks the US30 index would rather forget as it fell very sharply down through any support at the 25,000 level and then also through the 24,000 level down to that 18 month low. As expected the 24,000 level did offer some resistance and it will be interesting to see whether this level props up the index should it decline from its current levels. In late November 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 few months have seen the index moving sharply between 24,000 and 26,000 as the volatility and the swings back and forth intensified before the massive drops in December which was the most volatile the index has been in many years. 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 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 of last year.

There seems to be some mixed views about what is facing the U.S. Federal Reserve (Fed) in 2019 with Fed officials comfortable with their current ‘patient’ approach while others are concerned the global slowdown may be worse than anticipated. Nobel Prize-winning economist Paul Krugman believes there is a significant chance the world economy is headed for a recession in 2019. It appears a growing number of market participants are worried about a severe economic downturn in the near future, with the long-running United States - China trade war dampening consumer and business confidence. Most economists believe that economic growth is slowing, however many central bank officials have hope for a soft landing rather than an outright recession. Mr Krugman said the US economy may be heading into a recession at a time when the Federal Reserve doesn’t have the firepower to properly combat a slump. “There seems to be an accumulation of smaller problems and the underlying backdrop is that we have no good policy response,” he said in an interview. Meanwhile at a recent conference, Federal Reserve Governor Michelle Bowman said, “When I look at the jobs numbers and when I look at the inflation numbers, our economy’s in a good place.”