Dow Jones Industrial Average (.DJI) Drops 1,191, NASDAQ Composite (.IXIC) Sinks 414

Dow Jones Industrial Average (.DJI) Drops 1,191, NASDAQ Composite (.IXIC) Sinks 414

Dow Jones Industrial Average (.DJI) Drops 1,191, NASDAQ Composite (.IXIC) Sinks 414

The Dow Jones Industrial Average sank nearly 1,200 points Thursday, deepening a weeklong global market rout caused by worries that the coronavirus outbreak will wreak havoc on the global economy.

The S&P 500 has now plunged 12% from the all-time high it set just a week ago. That puts the index in what market watchers call a “correction,” which analysts have said was long overdue in this bull market, which is the longest in history.

It was the worst one-day drop for the market since 2011, and stocks are now headed for their worst week since October 2008, during the global financial crisis.

The losses extended a slide in stocks that has wiped out the solid gains major indexes posted early this year. Investors came into 2020 feeling confident that the Federal Reserve would keep interest rates at low levels and the U.S.-China trade war posed less of a threat to company profits after the two sides reached a preliminary agreement in January. The virus outbreak has upended that rosy scenario as economists lower their expectations for economic growth and companies warn of a hit to their business.

“This is a market that’s being driven completely by fear,” said Elaine Stokes, portfolio manager at Loomis Sayles, with market movements following the classic characteristics of a fear trade: stocks are down, commodities are down and bonds are up.

Bond prices soared again, sending the yield on the 10-year Treasury to another record low. When yields fall it’s a sign that investors are feeling less confident about the strength of the economy going forward.

More and more companies are warning that the outbreak will hurt their profits. Microsoft warned that the outbreak had interrupted its supply lines, following a similar warning last week from Apple. Crocs also fell sharply after saying its results would be hurt.

Energy stocks fell sharply as the price of oil dropped 3.4%.

Stokes said the swoon reminded her of the market’s reaction following the Sept. 11, 2001 terrorist attacks.

“Eventually we’re going to get to a place where this fear, it’s something that we get used to living with, the same way we got used to living with the threat of living with terrorism,” she said. “But right now, people don’t know how or when we’re going to get there, and what people do in that situation is to retrench.”

The virus has now infected more than 82,000 people globally and is worrying governments with its rapid spread beyond the epicenter of China.

Japan will close schools nationwide to help control the spread of the new virus. Saudi Arabia banned foreign pilgrims from entering the kingdom to visit Islam’s holiest sites. Italy has become the center of the outbreak in Europe, with the spread threatening the financial and industrial centers of that nation.

At their heart, stock prices rise and fall with the profits that companies make. And Wall Street’s expectations for profit growth are sliding away. Apple and Microsoft, two of the world’s biggest companies, have already said their sales this quarter will feel the economic effects of the virus.

Goldman Sachs on Thursday said earnings for companies in the S&P 500 index might not grow at all this year, after predicting earlier that they would grow 5.5%. Strategist David Kostin also cut his growth forecast for earnings next year.

Besides a sharply weaker Chinese economy in the first quarter of this year, he sees lower demand for U.S. exporters, disruptions to supply chains and general uncertainty eating away at earnings growth.

Such cuts are even more impactful now because stocks are already trading at high levels relative to their earnings, raising the risk. Before the virus worries exploded, investors had been pushing stocks higher on expectations that strong profit growth was set to resume for companies.

The S&P 500 was recently trading at its most expensive level, relative to its expected earnings per share, since the dot-com bubble was deflating in 2002, according to FactSet. If profit growth doesn’t ramp up this year, that makes a highly priced stock market even more vulnerable.

Goldman Sach’s Kostin said the S&P 500 could fall to 2,900 in the near term, which would be a nearly 7% drop from Wednesday’s close, before rebounding to 3,400 by the end of the year.

Traders are growing increasingly certain that the Federal Reserve will be forced to cut interest rates to protect the economy, and soon. They’re pricing in a nearly two-in-three probability of a cut at the Fed’s next meeting in March. Just a day before, they were calling for only a one-in-three chance, according to CME Group.

A handful of companies have managed to gain ground in the latest rout of stocks. Medical teleconferencing company Teladoc surged 15.7% and 3M, which counts surgical masks among its many products, rose 0.8%.

The market’s sharp drop this week partly reflects increasing fears among many economists that the U.S. and global economies could take a bigger hit from the coronavirus than they previously thought.

Earlier assumptions that the impact would largely be contained in China and would temporarily disrupt manufacturing supply chains have been overtaken by concerns that as the virus spreads, more people in numerous countries will stay home, either voluntarily or under quarantine. Vacations could be canceled, restaurant meals skipped, and fewer shopping trips taken.

“A global recession is likely if COVID-19 becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea,” said Mark Zandi, chief economist at Moody’s Analytics.

The market rout will also likely weaken Americans’ confidence in the economy, analysts say, even among those who don’t own shares. Such volatility can worry people about their own companies and job security. In addition, Americans that do own stocks feel less wealthy. Both of those trends can combine to discourage consumer spending and slow growth.

Technical Indicators

Overall, the bias in prices is: Downwards.

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

The projected upper bound is: 8,902.03.

The projected lower bound is: 8,224.19.

The projected closing price is: 8,563.11.

Candlesticks

A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.

A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 3 falling windows in the last 50 candles–this makes the current falling window even more bearish. The two candles preceding the falling window were black, which makes this pattern even more bearish.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

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 2.8028. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 5 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 24.98. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 5 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 -195.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 5 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 4 period(s) ago.

Rex Takasugi – TD Profile

NASDAQ COMPOSITE closed down -414.295 at 8,566.480. Volume was 96% above average (neutral) and Bollinger Bands were 144% wider than normal.

Open     High      Low     Close     Volume___
8,744.0328,904.1128,562.0468,566.4801,146,902,272
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 9,405.48 9,248.30 8,387.97
Volatility: 35 24 20
Volume: 724,842,368 632,041,536 566,819,072

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

NASDAQ COMPOSITE gapped down today (bearish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
NASDAQ COMPOSITE is currently 2.1% above 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 volume flowing into and out of .IXIC at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .IXIC and have had this outlook for the last 2 periods. Our momentum oscillator is currently indicating that .IXIC is currently in an oversold condition.

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