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The percentage drop so far in March for the Dow Jones Industrial Average (.DJI) would rank as its second-worst in history

The percentage drop so far in March for the Dow Jones Industrial Average (.DJI) would rank as its second-worst in history

The month of March has rolled in like a ferocious lion for bullish stock-market investors, leaving little but carnage in its aftermath, as uncertainties about the effects of the coronavirus outbreak abound.

The decline for the Dow Jones Industrial Average DJIA, -4.54% has been simply gut-wrenching for the average investor, with the monthly plunge so far for the nearly 124-year-old, blue-chip gauge poised to represent its steepest since 1931 — a year that falls within the Great Depression, the worst economic crisis in U.S. history.

The Dow has shed a staggering 6,235 points, or 24.54%, in March so far, which has dragged the stock index down to its lowest level since December of 2016. The percentage drop so far ranks as its second-worst in history after the 30.7% monthly skid in September of 1931, when the unemployment rate was at a lofty 15.9%.

DATE% DECLINE
Sept. 30, 193130.70
March 20, 202024.54*
April 29, 193223.68
March, 31, 193823.67
Oct. 30, 198723.22
Source: FactSet data

The velocity of the dive has been stunning.

It took a breathtaking 19 trading sessions for the Dow to fall by at least 20% from its record high on Feb. 12, a drop that meets the commonly used definition for a bear market. That’s the fastest such slide from peak to trough since 1931. It took 16 trading days for the S&P 500 SPX, -4.33% from its record high to enter a bear market, the fastest such reversal since 1933. The Nasdaq Composite Index COMP, -3.79% also slid into a bear market in those 16 days, the fastest such decline on record.

Besides obliterating the bullish trend the plunge has done a lot of technical damage, with a bearish, so-called death cross forming in the Dow, where the 50-day moving average — which many chart watchers use as a short-term trend tracker — crosses below the 200-day MA, which is widely viewed as a dividing line between longer-term uptrends and downtrends.

So is all hope lost for investors anticipating a turnaround?

It is important to note that the market’s reaction isn’t necessarily irrational to experts. The emergence of COVID-19, the infectious disease first identified in Wuhan, China, in December that has infected nearly 300,000 people globally and claimed almost 12,000 lives, is unlike any crisis markets have faced in generations.

It has required unprecedented actions by the central banks and governments across the globe because the disruptions to global economies and supply chains is likely to throw the U.S. and other economies into a recession.

Business and consumer activity have ground to a halt to mitigate the pandemic’s spread.

And the length and severity of the illness isn’t yet clear, though some are expecting peak infections to occur in the next 45 days or so.

That said, a number of investors are hopeful that the market will begin to regain its footing, even if it declines further in the next few weeks and if the country slides into a recession.

Here’s the outlook from a few strategists, economist and investors:

Peter Cardillo, chief market economist at Spartan Capital Securities says the emergency actions undertaken by the Fed and elsewhere in government may soften the length of the coming recession.

Cardillo added the “collapse in the stock market in such a short period of time suggests the worst fears of the unknown are being discounted. Indeed, calling a bottom is very difficult, but value is beginning to pop up in many sectors.”

Anthony Scaramucci, the former White House communications director and the founder of hedge fund SkyBridge Capital, told MSNBC during a Saturday interview he expects another 10% drop is likely before the markets stabilize.

However, he believes that an effective stimulus package could help to give the economy and markets a big lift. Larry Kudlow, the director of the National Economic Council, on Saturday said that a rescue package to help lessen the impact of the epidemic could top $2 trillion.

Scaramucci thinks that a bigger package may assuage Wall Street investors’ frayed nerves.

Torsten Sløk, chief economist at Deutsche Bank Securities, says that the recovery in Wuhan, where the virus reportedly originated, could hold some clues for the U.S.

Sløk notes that the lockdown in the Hubei province capital lasted 50 days and extrapolates that based on current attempts to limit the movement of people in the U.S. economic activity may return to normal by May, with a market rebound, perhaps, in anticipation.

“The Wuhan lockdown lasted 50 days, which means that the US and Europe should be prepared that we may get to early May before we begin to see some normalization in economic activity. Markets, however, are likely to rebound before, and many conversations this week have been about what the rebound will look like,” he wrote in a Saturday research note.

However, the economist, said that in the wake of the so-called Spanish flu in 1918, where between 50 million and 100 million people are thought to have died, the Dow’s rebound was more subdued.

Source: Deutsche Bank Securities

But Sløk says that measures that have been taken thus far, and those that likely will be taken, could foster a stronger rebound.

But it’s far too early to call a bottom in the current market downturn. 

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 26,178.88.

The projected upper bound is: 21,583.68.

The projected lower bound is: 16,381.44.

The projected closing price is: 18,982.56.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 23 white candles and 27 black candles for a net of 4 black candles.

An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend. It then signifies that the momentum may be shifting from the bulls to the bears.

If the engulfing bearish pattern occurs during a downtrend (which appears to be the case with DJ INDU AVERG), it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.

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 21.1287. 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 30.10. 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 3 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 -99. 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 20 period(s) ago.

Rex Takasugi – TD Profile

DJ INDU AVERG closed down -913.209 at 19,173.980. Volume was 141% above average (neutral) and Bollinger Bands were 368% wider than normal.

Open     High      Low     Close     Volume___
20,253.15020,531.26019,094.27019,173.980 872,291,456
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 21,739.46 27,078.22 27,073.00
Volatility: 136 71 38
Volume: 793,802,816 455,216,416 305,944,960

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 29.2% 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 19 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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