European markets are failing to follow through on yesterday’s bounce and a decent performance overnight in Asia, with the main bourses in the red this morning. Although the FTSE 100 is marginally in the green as TUI jumps on rising sales.

Wall Street is looking to build on a big two-day rally but there is as yet no real conviction behind this, as evidenced by the softer performance in European indices this morning.

A lack of volume yesterday on Wall Street suggests there is not a huge amount of interest in this recovery just yet and may be a signal that this is not a reversal in a secondary downtrend. US stock market volumes last week were the highest since August 2011 and the sharp rally on Friday was also marked by a surge in volumes. But it was much thinner on Monday, although market breadth was decent yesterday with advancers outnumbering fallers by about two-to-one. Lack of volume yesterday suggests we are yet to build consensus around this rally and it could run into trouble if conviction is lacking.

US ten-year bond yields remain above 2.8% and with the prospect of a ballooning US deficit there is every chance that bond issuance will need to rise significantly, further keeping the upwards pressure on yields. While the velocity of selling over the last couple of weeks was arguably more about technical and volatility-based trades, the fundamentals remain the main focus. Higher yields and tighter monetary policy are a problem for equity markets and this makes tomorrow’s US CPI print among the most important for some time.

Dow Levels to watch

Yesterday’s bounce has the Dow Jones industrial average trading above its 200-day and 100-day moving averages. Current futures put the index on the 24500 level, the 38.2% retracement of the top-to-bottom fall. A push higher from here brings the 24940 area into view, the 50% retracement of the move and a level that was approached by rejected in the hour ahead of the market open on Thursday, Feb 8th. The Feb 8th high at 25300 is next before there is resistance around 25500, the highs that were tested and then founding wanting on Feb 5th before the market fell drastically. The current 24500 region is also an area of trend resistance that if breached could be a reversal signal and turn into support. On the downside, the 23.61% retracement of the rout around 24000 looks to offer some support. 

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