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Dow Jones Futures Collapse as Investors Flee US Junk Bonds

Dow Jones
Dow Jones

Dow Jones futures are deeply in the red today. The futures have dropped by more than 1% today. The same is true with other American indices like the Nasdaq 100 and S&P 500 that are down by 0.60% and 0.80%, respectively.

Similarly, European indices have also moved sharply lower today. In Germany, the DAX index has cratered by more than 1.78% while in the United Kingdom, the FTSE 100 has dropped by more than 0.55%. In France, the CAC 40 index has dropped by more than 1.70%.

The Dow Jones is falling at a time when investors are getting relatively worried about the health of the global economy. Indeed, in the United States, the flight to safety has seen investors have sold-off junk bonds in large numbers, according to a report by the Financial Times.

The report said that investors have pulled out more than $4.86 billion from funds that hold high-yield debt. That was the highest amount of money pulled out since March, when the main indices crashed. Indeed, the Blackrock iShares high-yield bond index has seen redemptions worth more than $2 billion.

Meanwhile, individual investors are increasingly worried about the strength of the current rally. According to the latest report by the American Individual Investors Association, about 46% of these investors believe that stocks will fall in the near term. In the previous report, the percentage was about 40%.

The Dow Jones is falling mostly because of several factors. First, while Democrats in congress have unveiled a $2.4 trillion stimulus package, there is a possibility that the bill will not pass in the senate. Without stimulus, Fed officials and other experts have warned that the US recovery is in peril. Second, the upcoming election is likely to be extremely tough, with Trump refusing to commit to a peaceful transition if he loses. Third, the US dollar has been relatively strong, with the dollar index rising by 0.25% today.

Dow Jones technical analysis

The daily chart shows that the Dow Jones index has been in a downward trend after it reached a high of $29,143. The price has managed to move below the neckline of the head and shoulders pattern at $27,170. It has also moved below the 78.6% Fibonacci retracement level. Also, the index has moved below the 25-day and 50-day exponential moving averages.

Therefore, I suspect that the Dow Jones will continue falling as bears attempt to move to the next support at $26,000. On the flip side, a move above the resistance level at $28,000 will invalidate this trend.

Dow Jones Daily Chart

Dow Jones