Dow Jones futures rose by more than 150 points as the market waited for a new stimulus. In a statement yesterday, Nancy Pelosi said that the next stimulus bill would be higher than $1 trillion. This will be a higher number than the $250 billion that Steven Mnuchin has requested.
Still, the market is probably getting ahead of itself. As I wrote yesterday, the current rally is coming at a time when there is no actionable data that suggests the current pandemic is ending. To the contrary, most numbers we have received so far have been negative. The unemployment rate has surged and the people signing for unemployment claims have risen. Meanwhile, the number of Coronavirus cases and deaths has continued to rise.
The Dow Jones index rose, ignoring a stark warning from John Chambers. John is a respected venture capitalist, who was the CEO of Cisco. As the CEO, he turned the company to a cash flow king, with more than $40 billion in revenue. In an interview with MarketWatch, John said that the US economy would continue to lag up to 2021. “Things will get worse before they get better. The next quarter will be ugly,” he said.
A big reason why the Dow could retest its YTD low is that we have not yet received the first quarter earnings. Therefore, investors are just doing guesswork, hoping that companies’ results won’t be bad. In the interview, Chambers also warned that, “companies are running out of cash. It’s time to reinvent or be left behind.”
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The Dow Jones is at a critical juncture. As shown on the four-hour chart below, was about to test the 50% Fibonacci Retracement level. The index has now moved lower and is a few points above the 38.2% Fibonacci level. This Fibonacci was drawn by connecting the highest and lowest points of the year.
Today, the index could attempt to retest the 50 Fibonacci level of $23,865. A short-term bullish trend will ensue if it manages to stay above this level.
On the flipside, the index may decline and attempt to test the 23.6% Fibonacci level of $20,783, which is also along an important swing low.