- Summary:
- The Dow Jones index declined as companies started to warn about the challenges they are facing. Investors are also cautious about low oil prices in the US
The Dow Jones index declined by more than 2% as investors continued to worry about low oil prices and the corporate earnings season. The index’s CFDs are trading at $23,000, which is their lowest level in more than two weeks.
Corporate Earnings Disappoint
Today, we received corporate earnings from Coca-Cola, which is a member of the Dow Jones Industrial Average. The company’s earnings came in at 51 cents per share, which was slightly better than what analysts were expecting. It made revenue of more than $8.6 billion. The company said that demand has been hurt by the virus, with volumes being down by 25% in April.
Other American companies that released earnings are Lockheed Martin, Philip Morris, Travelers, and Equifax. The results had a common theme. These companies said that they had a great beginning of the quarter before things started going wrong in the final month. They also warned that the remaining part of the year will be relatively shaky.
Crude Oil Disappoints
Another key theme in the Dow Jones index was crude oil. Yesterday, the price of West Texas Intermediary dropped below zero before rising. The price then started dropping today and is still in the negative zone. Meanwhile, Brent, the global benchmark declined by more than 20% and moved below $20.
The Dow Jones is affected by the low crude oil price in two ways. First, ExxonMobil and Chevron are two constituents of the index. These two companies have a direct link to oil price. This means that their stock prices have a close correlation to oil price. In fact, their stock prices dropped by more than 3% in the premarket. As a result, they have lost more 40% of their value this year.
Second, the Dow Jones is also made up of financial companies like JP Morgan, American Express, and Goldman Sachs. These companies have directly and indirectly provided billions of dollars to oil companies. Therefore, they will be affected if many oil companies go bankrupt.
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Dow Jones Technical Outlook
Looking at the four-hour chart, we see several things about the Dow Jones index. First, we see that the index has been moving within an equidistance channel. The price is now along the lower line of this channel.
Second, the index found significant resistance between the 50% and 61.8% Fibonacci retracement level. This retracement was drawn by connecting the YTD high and low. Third, we see that the price has entered into the Ichimoku cloud in a bearish manner.
Therefore, I expect the index to continue falling, with the next target being at the 38.2% retracement level at $22,620.