Nick Goold
Dow Jones Index
Concerns around the health of the world's second-largest economy, China, put pressure on US equities last week. Weakness in the Chinese property market resulted in one of China's most prominent developers, Evergrande, filing for bankruptcy on Friday. While the US economy continues its recent strength as July Retail Sales beat expectations, the Chinese economy is vital to world growth.
Equity investors are also closely watching the US bond market as 10-year yields pushed higher again, encouraging liquidation in the equity market. The US 30-year mortgage rate hit a 20 high year, which could negatively impact the US economy.
While the Dow has fallen below critical support at 34,600, and the technical picture is bearish, markets can overreact in the summer. It is hard to judge the seriousness of the Chinese slowdown, and with few new releases this week, technical analysis is essential. Below 34,600, look for lower and buying opportunities above 34,600.
Resistance: 34600, 35000, 36000, 36500, 37000
Support: 34,000, 33610, 33000, 32550, 31750
Nikkei 225 index
Despite much of Japan enjoying holidays last week, the Nikkei came under pressure following US equities lower. Japanese GDP data was much better than expected, and CPI data showing inflation remaining under control could not outweigh the concerns in the Chinese economy.
The Yen continued to weaken, moving above 145.00 resistance which helped to minimize the losses. Still, the probability of the Bank of Japan intervening to strengthen the Yen is worrying the market. Also of concern was that the GDP data uncovered that Japanese personal consumption fell as inflation concerns increased.
The Nikkei has a similar technical picture to the Dow after it closed below support at 31,650. The most likely scenario is buyers will return this week, and buying above 31,650 is a good strategy. The Nikkei remains vulnerable to further falls should the index remain below 31,650.
Resistance: 31650, 34000, 35000
Support: 30800, 30500, 30000
