Dow Jones
The Dow Jones is up by more than 500 points as the markets opens after the long weekend. Most stocks in the index have rallied in the premarket. Similarly, it is approaching the important resistance level of $25,285.
The main reason why the Dow Jones index is rallying is because of the progress made in curing the coronavirus pandemic. Earlier today, we received news that more companies, including Merck are working to develop a vaccine that will help prevent the disease. Other companies developing a vaccine or drug for the illness are Gilead, Sanofi, and Novavax among others.
At the same time, more countries are reopening their economies. Just yesterday, Japan declared victory following its unconventional approach that did not have a major lockdown. Other countries that have reopened are Germany, Australia, and New Zealand. Most of the companies in the Dow Jones sell their products in these countries.
Another reason why the Dow Jones is soaring is a weaker dollar. Most companies in the index do a lot of business overseas. These include the likes of Boeing, ExxonMobil, Apple, and Microsoft. A weaker dollar is usually positive for these companies. That is because it makes their products relatively cheaper than those from their peers. US dollar index is down by about 40 basis points today.
Crude oil price is a sensitive thing for the Dow Jones index. Sensitive because higher oil prices affect some companies while lower prices affect others. For example, ExxonMobil and Chevron make more money when oil prices are higher. Indeed, their share prices have risen by more than 2% in the premarket.
Also, higher oil prices help to reduce the likelihood of bankruptcies in the energy sector. These bankruptcies would in turn affect companies like JP Morgan and Goldman Sachs that are part of the Dow Jones.
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The Dow Jones is trading at $25,057 in the futures market. On the daily chart, the price has moved above the previous high of $24,915 and is now approaching the 61.8% Fibonacci retracement level. The price is still above the 100-day and 50-day exponential moving averages. In other words, the Dow Jones has broken the previous resistance and is about to hit the next one at $25,284. Therefore, I expect bulls to remain solidly in control.
On the flip side, a move below the 50% retracement at $23,951 will invalidate this trend because it will signal that there are more sellers in the market.