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Dow Jones Industrial Average (.DJI) plunges more than 700 points despite the Fed cutting rates

Dow Jones Industrial Average (.DJI) plunges more than 700 points despite the Fed cutting rates

Stocks fell sharply in volatile trading on Tuesday as an emergency rate cut by the Federal Reserve failed to assuage concerns of slower economic growth due to the coronavirus outbreak. 

The decision to cut rates by half a percentage point came two weeks before the Fed’s scheduled meeting as the central bank felt it was necessary to act quickly to combat the effect of the virus spreading worldwide. It’s the first such emergency action coming in between scheduled meetings since the financial crisis.

The Dow Jones Industrial Average closed 785.91 points lower, or nearly 3%, to 25,917.41; it rose more than 300 points earlier in the day. The 30-stock average gyrated between sharp gains and solid losses after the decision was announced. The S&P 500 fell 2.8% to 3,003.37 while the Nasdaq Composite pulled back 3% to 8,684.09.

Investors, in turn, loaded up on U.S. Treasurys, pushing the benchmark 10-year yield below 1% for the first time ever. Gold, meanwhile, jumped 2.9% to settle at $1,644.40 per ounce.

Tuesday’s moves follow a roaring comeback rally in the previous session that saw the Dow post its biggest percentage gain since March 2009. The index also recorded its largest-ever point surge on Monday, gaining 1,294 points..

Monday saw U.S. stocks snap a losing streak that had gone on for over a week.  Some investors were skeptical that the rally has legs without a significant central bank response. Even if that comes to fruition, investors have their doubts the market has seen the end of its tumultuous trading of the last six days.

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 27,793.86.

The projected upper bound is: 27,028.45.

The projected lower bound is: 24,713.50.

The projected closing price is: 25,870.97.

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 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.

A dark cloud occurred (which indicates that prices moved up strongly on the previous bar, opened higher, but then closed significantly lower). This implies weakness as the momentum appears to be shifting from the bulls to the bears. Note that the lower the close of the black candle (relative to the white candle), the more bearish the dark cloud pattern.

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 39.6648. This is not an overbought or oversold reading. The last signal was a buy 1 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 31.48. 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 -85. This is not a topping or bottoming area. The last signal was a buy 0 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 7 period(s) ago.

Rex Takasugi – TD Profile

DJ INDU AVERG closed down -785.910 at 25,917.410. Volume was 119% above average (neutral) and Bollinger Bands were 322% wider than normal.

Open     High      Low     Close     Volume___
26,762.47127,084.59025,706.27925,917.410 647,082,560
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 27,335.69 28,582.84 27,242.26
Volatility: 49 27 19
Volume: 517,204,928 330,401,120 276,715,424

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 4.9% 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 6 periods.

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