E-mini Dow Jones Industrial Average (YM) Futures Analysis – October 24, 2013 Forecast

December E-mini Dow Jones Industrial Average futures are called better this morning based on a strong overnight rally. The Dow is recovering nicely after an attempt to break it on Wednesday failed to attract enough selling pressure to take out significant support levels.

Yesterday, the catalyst behind the weakness was a report out of China that several major banks wrote off about $3.7 billion in bad loans. In addition, the central bank failed to provide liquidity which caused a spike in short-term money rates. Today, investors will get a chance to react to the latest Flash Manufacturing PMI, weekly unemployment claims and new home sales.

Traders are likely to react to the Flash PMI data because they want confirmation that the economy remains sluggish enough for the Fed to continue its aggressive monetary stimulus. Since this number will reflect the impact of the government shutdown, investors are looking for the report to show a slight decline from last month’s 52.8 reading. A lower reading should trigger a rally because it will mean the Fed will stay the course and refrain from tapering until at least December.

Technically, the Dow found support overnight on a steep uptrending Gann angle at 15352. This puts it in a position to challenge a long-term downtrending angle at 15458 and this week’s high at 15459. Taking out these levels should trigger an acceleration to the upside.

If selling pressure comes in at 15458 to 15459 then look for traders to go after the support angle at 15352. Taking out this angle will put the market in a weak position and could indicate a shift in sentiment. This late in the week, investors should watch the action around last week’s close. A close under 15316 on Friday will form a weekly closing price reversal top and could indicate the start of a 2 to 3 week break.

Look for an upside bias early in the session. Traders are likely to push the market through 15459 if the PMI data is bearish. There is the possibility of an acceleration to the upside, but overbought conditions could also help to limit gains. A failure to follow-through to the upside following a breakout through 15459 will be a sign that the selling is greater than the buying. If this occurs then look for investors to go after the support angle at 15352.