Wall Street closed in a sea of red / DJIA bears look to break 78.6% Fibo confluence support

• The Dow Jones Industrial Average dropped  206.67 points, or 0.8%, to end at 25,819.65, the lowest since Feb. 14, recovering from being down by as many as 415 points
• The S&P 500 index lost11.07 points, or 0.4%, to 2,792.62 .
• Nasdaq Composite Index COMP, -0.23%  dropped 17.79 points, or 0.2%, to 7,577.57.

Wall Street started out the week with a thud. The bulls capitulated mid-session and the indexes plummeted. The DJIA fell as much as  415 points within a day's range of 500 points trade by the close. It would appear that investors are not buying the quick fix solution to the Chinese US trade spat that the WSJ implied in a weekend article, suggesting that a deal could be signed sealed and delivered as soon as this month.

If such was the case, it would not make sense for Robert Lighthizer to have been so cautious in his rhetoric last week when saying that there is still that much work to do, including working out how structural reforms that the US require of China will be enforced. “If we can complete this effort - and again I say IF ... we might be able to have an agreement that helps us turn the corner in our economic relationship with China,” Lighthizer said in testimony to the U.S. House Ways and Means Committee last week - in stark contrast to a WSJ weekend article. Some are putting the stock market selloff down to a buy the rumour sell the fact, but that is unlikely considering there has been no fact to sell and, indeed, a trade deal is still not a foregone conclusion. “The reality is this is a challenge that will go on for a long, long time,” Lighthizer said. 

Additional factors 

Elsewhere, US data was a big miss on the construction spending and there is also that point that much of the recent disappointments in data may not have been captured in last week's GDP, a potential weight on investors minds. "The US government shutdown-delayed December construction report showed spending down 0.6% in December, below consensus (though in line with Bureau of Economic Analysis assumptions, implying no revisions to GDP), adding to the lengthening list of weak data at year’s end that has so far included retail sales, housing starts and a record trade deficit. For the 2018 year, US construction spending rose 4.1% - the weakest outturn in seven years," analysts at Westpac explained. 

On the political front, the analysts also pointed to politics in Washington:  "There may have been some jitters around US political instability, with House Democrats sending letters demanding – as the Washington Post reported – “documents from family members, business associates, political confidants and others with connections to President Trump, opening a sprawling investigation of whether he and his administration have engaged in obstruction of justice, corruption and abuse of power.”

DJIA levels

The daily outlook on the DJIA remains positive on a bullish Ichimoku Cloud's backdrop. A spanner in the works for the bulls, however, would be a break below the  78.6% Fibo of the Oct swing highs to Dec rout lows as it has the confluence of the rising trend-line support. this would also be a break below the  21-D SMA and bears would look to a key downside target at the 61.8% Fibo level positioned beneath the 25000 psychological level at 24847. Should bears crack that nut, the next target on the horizon will be the 38.2% Fibo at 24500 and then the 50% Fibo just below the psychological 24000 level.