Falling Knife or Small Correction for Global Stock Markets?

by John Knobel


US Dow Jones remains bearish; potential for -2,000 point downside move from current price provided 26,450 resistance remains unchallenged;  the index has lost -6% over the last 30 days; current price 25,750 remains below its short, medium and longer term moving averages (bearish); strong resistance at 26,450; the fact that price has now broken below the lower Gain Fan line (Chart) indicates further downside potential for a lower price extension towards the 23,650’s; otherwise a break above 26,450 may open up a challenge towards the recent all time highs near 27,400;


  • US Earnings Season mostly better than forecast second quarter (Q2) results; however, forward earnings estimates are falling;
  • Corporate Earnings outlook and leading macro-economic data need to stabilize before stock markets can find support;
  • US-China trade war driving force behind global stock market direction;

Market Drivers


  • Latest US Data supports US Fed forecast of solid economic growth and higher inflation; US Retail Sales rose the highest in 4 months;
  • Most economists believe that US will cut interest rates again next month; to protect against a global economic slowdown;


  • Downside risk for the global economy remains high; US – China trade war seen as main driver;
  • Fears of a global recession remain; China reported the weakest industrial growth output since 2002; German economy shrinks on the back of falling exports;

Source: FXGM / Bloomberg