Tuesday, December 3, 2019 6:49 PM EDT
The VIX bounced from multi-month lows late last week in a move that eventually saw the “fear index” explode higher early this week. Jumping from 12 to 18 in just three sessions, trade war worries have worked to undermine the Dow Jones and S&P 500. Now, the two equity indexes will look to hold above key areas of support in an effort to stave off deeper losses.
DOW JONES PRICE CHART: DAILY TIME FRAME (JANUARY 2018 – DECEMBER 2019) (CHART 1)
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In the case of the Dow Jones, support around 27,400 worked to stall the index’s descent on Tuesday and could look to do so again if bearishness resumes later this week. If it breaks, horizontal resistance – in conjunction with the 200-day moving average – around 26,700 may be the next major level the DJIA will look to test.
S&P 500 FORECAST
Turning to the S&P 500, support is presented in a similar fashion. Touching the various market tops back to January 2018, the S&P 500 used the trendline as a lifeline on Tuesday. If bulls can regain their footing, the index may look to use the line as an escalator higher, offering the opportunity for a series of higher lows over the next few days. Secondary support may reside at the horizontal trendline around 3,030 before a confluence of support around 3,000 comes into the frame.
(Click on image to enlarge)
With the technical landscape outlined, traders should look for trade war headlines to dictate sentiment and price action. As it stands, commentary from US Commerce Secretary Wilbur Ross and President Trump suggest a US-China trade deal is far from reality and may not materialize until after the 2020 election.
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As I said time and time again, don't expect a China trade deal while Trump is in office and avoid the whiplash that is nothing more than market manipulation. Be cautious but be aware the US market can hold its own so far as there is little else to invest in in this low interest rate environment.