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Dow Jones Industrial Average (.DJI) closes in bear market territory as coronavirus is declared a pandemic

Dow Jones Industrial Average (.DJI) closes in bear market territory as coronavirus is declared a pandemic

Stocks tumbled Wednesday as fears about the economic damage from the coronavirus pandemic intensified and investors questioned whether any economic response from Washington will be effective — when and if they see one.

The Dow Jones Industrial Average dropped 1,464 points, bringing it 20% below its record set last month and putting it in what Wall Street calls a bear market. The broader S&P 500, which professional investors care more about, is just 1 percentage point away from falling into bear territory and bringing to an end one of the greatest runs in Wall Street’s history.

Vicious swings like Wednesday’s are becoming routine as investors rush to sell amid uncertainty about how badly the outbreak will hit the economy. The day’s loss wiped out a 1,167 point gain for the Dow from Tuesday and stands as the index’s second-largest point drop, trailing only Monday’s plunge of 2,013.

With Wall Street already on edge about the economic damage coming from the virus outbreak, stocks dove even lower Wednesday after global health officials declared the outbreak a pandemic.

An array of investors are calling for big, coordinated action from governments and central banks around the world to stem the threat to the economy from the virus. President Donald Trump has promised some aid.

Investors know that lower interest rates or government spending programs won’t solve the crisis. Only the containment of the virus can do that. But such measures could help support to the economy in the meantime, and investors fear things would be much worse without them.

The Bank of England became the latest big central bank on Wednesday to make an emergency interest-rate cut in hopes of blunting the economic pain caused by the virus, which economists call the global economy’s biggest threat.

The stakes are rising as the World Health Organization cited “alarming levels of inaction” by governments in corralling the virus when it made its pandemic declaration.

“The government probably should have been thinking about stimulus last month,” said Kristina Hooper, Invesco’s chief global market strategist. “Every day that passes makes the economic impact of coronavirus that much worse.”

Many investors are worried that a divided Congress will have trouble agreeing to any plan, she said.

Besides worries about the virus and the government’s ability to get something done for the economy, the market was also weighed down by a continued decline in oil pries, said Patrick Schaffer, global investment specialist at J.P.Morgan Private Bank.

“I want all retail investors to expect this environment will continue: sharp down days, sharp up days,” he said. “This feeling of whiplash that people feel probably continues for some period of time.”

The speed of the market’s declines and the degree of its swings the last few weeks have been breathtaking.

The Dow Jones Industrial Average has had seven days in the last few weeks where it swung by 1,000 points, including Wednesday. The Dow has done that only three other times in history.

For most people, the new coronavirus causes only mild or moderate symptoms, such as fever and cough. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia.

The vast majority of people recover from the new virus, but the fear is that COVID-19 could drag the global economy into a recession by hitting it from two ends.

On the supply side, the worst-case scenario has companies with less things to sell as factories shut down and arenas dim the lights because workers are out on quarantine. On the demand side, companies see fewer customers because people are huddling at home instead of taking trips or going to restaurants.

The Dow Jones Industrial Average fell 1,464.94 points, or 5.9%, to 23,553.22, the S&P 500 fell 140.85, or 4.9%, to 2,741.38 and the Nasdaq lost 392.20, or 4.7%, to 7,952.05.

Even a climb in Treasury yields, which has been one of the loudest warning bells on Wall Street about the economic risks of the crisis, wasn’t enough to turn stocks higher. The yield on the 10-year Treasury rose to 0.83% from 0.75% late Tuesday. That’s a sign of less demand for ultrasafe U.S. government bonds.

Asian markets also fell, while European markets lost earlier gains following the rate cut by the Bank of England and turned lower.

For all the fear in the market and selling by huge institutions, many regular investors have been holding relatively steady.

Clients are mostly sticking to their long-term investment plans, he said, though some may want to adjust their portfolios if they feel too uncomfortable with all the volatility. Still, the standard advice from most advisers is to focus more on long-term goals and pay less attention to short-term swings, which will likely dominate markets for some time.

Stock prices generally move on two main factors: how much profits companies are earning and how much investors are willing to pay for each $1 of them. For the first part, Wall Street is slashing its expectations, which undercuts stock prices. For the second, all the coronavirus worries make investors less willing to pay high prices. Valuations were already above historical averages before the market’s declines began.

Strategists at Goldman Sachs on Wednesday sharply cut their expectations for earnings growth this year, saying it will lead to the end of this bull market, which began more than a decade ago.

A plunge in crude prices has wiped out profits for energy companies, while record-low Treasury yields are squeezing the financial sector. The strategists say S&P 500 earnings per share will likely fall 15% from a year earlier in the second quarter and could drag the index down to 2,450 in the middle of the year. That would be a nearly 28% drop from its record.

Goldman Sachs, though, also says it expects the drawdown to be short, with earnings rebounding later in the year as the pain from the coronavirus wanes. It says the S&P 500 could rise back to 3,200 by the end of the year.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

By the way, prices are vulnerable to a correction towards 27,458.38.

The projected upper bound is: 25,197.12.

The projected lower bound is: 21,705.64.

The projected closing price is: 23,451.38.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 16.7227. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 7 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 31.46. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 1 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -145.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 6 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 13 period(s) ago.

Rex Takasugi – TD Profile

DJ INDU AVERG closed down -1,464.939 at 23,553.221. Volume was 109% above average (neutral) and Bollinger Bands were 351% wider than normal.

Open     High      Low     Close     Volume___
24,604.63124,604.63123,328.32023,553.221 663,956,288
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 25,529.61 28,189.51 27,228.89
Volatility: 85 43 25
Volume: 648,254,080 371,785,216 286,820,224

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

DJ INDU AVERG is currently 13.5% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect moderate flows of volume out of .DJI (mildly bearish). Our trend forecasting oscillators are currently bearish on .DJI and have had this outlook for the last 12 periods. The security price has set a new 14-period low while our momentum oscillator has not. This is a bullish divergence.

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