Dow Jones, S&P 500 Outlook:
- A breakdown in US-China trade talks has spooked markets and revived volatility
- In response, the VIX surged from 6-month lows to briefly tap 18 on Tuesday
- Now, the Dow Jones and S&P 500 are left grasping for support as traders reassess valuations
Dow Jones, S&P 500 Plummet as VIX Explodes on Trade War Worries
The VIX bounced from multi-month lows late last week in a move that eventually saw the “fear index” explode higher early this week. Jumping from 12 to 18 in just three sessions, trade war worries have worked to undermine the Dow Jones and S&P 500. Now, the two equity indexes will look to hold above key areas of support in an effort to stave off deeper losses.
Dow Jones Price Chart: Daily Time Frame (January 2018 – December 2019) (Chart 1)
![dow jones price chart](https://a.c-dn.net/b/00zdOx/Dow-Jones-SP500-Plummet-as-VIX-Explodes-on-Trade-War-Worries_body_DJI_12.png)
In the case of the Dow Jones, support around 27,400 worked to stall the index’s descent on Tuesday and could look to do so again if bearishness resumes later this week. If it breaks, horizontal resistance – in conjunction with the 200-day moving average – around 26,700 may be the next major level the DJIA will look to test.
S&P 500 Forecast
Turning to the S&P 500, support is presented in similar fashion. Touching the various market tops back to January 2018, the S&P 500 used the trendline as a lifeline on Tuesday. If bulls can regain their footing, the index may look to use the line as an escalator higher, offering the opportunity for a series of higher lows over the next few days. Secondary support may reside at the horizontal trendline around 3,030, before a confluence of support around 3,000 comes into frame.
![S&P 500 price chart](https://a.c-dn.net/b/22uJlG/Dow-Jones-SP500-Plummet-as-VIX-Explodes-on-Trade-War-Worries_body_SPX_12.png)
With the technical landscape outlined, traders should look for trade war headlines to dictate sentiment and price action. As it stands, commentary from US Commerce Secretary Wilbur Ross and President Trump suggest a US-China trade deal is far from reality and may not materialize until after the 2020 election. In the meantime, follow @PeterHanksFX on Twitter for breaking news and its potential impact on the stock market.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
Read more: Stock Market December Forecast: Trade War Headlines to Stoke Volatility