July 4, 2019 | SQUARED DIRECT – US Indices traded higher on Wednesday with the Dow closing at a record high while US treasury yields are turning lower amidst weaker than expected economic data. The ADP employment report showed job growth of 102k but missed estimates, while the ISM non-manufacturing PMI figure declined.
The disappointing data further supported the case for a Fed rate cut, a move that would lift US equities as corporations benefit from lower interest rates. Meanwhile, a deteriorating economic outlook has left investors buying into the security of bonds and in turn turning treasury yields lower.
Having said that, one of the above fundamental themes should eventually dominate the other as US bonds and equities are moving in tandem with one another in response to the prospect of easier monetary policy and a weakening domestic economy. Moreover, markets cheered for President Trump’s dovish nominations to the Fed board and shrugged off geopolitical tensions arising from US-Iran threats.
Today the US stock market will be closed in observance of Independence Day and volume trading may be on the lighter side while sentiment should be news-driven.
Dow Jones index technical analysis
The Dow notched a fresh all-time high as it rose 0.67% to end at 26966. The index has now surpassed the resistance at 26940 while the daily and 4 hour RSI reading are hovering close to the overbought territory suggesting that the index may turn lower in response to the higher moves.
Look for a sustained move below the 26890 level to indicate selling pressure and potentially drive the Dow to meet the lower support at 26800 coincidings with the 20-period MA. Alternately a sustained move above 26890 level would indicate buying pressure and buoy the Dow’s gains. If there is enough upside momentum, the price would trade through the resistance at 26985 to advance beyond the 27000 level.
Support: 26890/ 26800
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