Dow Jones
Dow Jones futures are down by more than 100 points today as traders remain worried about the rising number of coronavirus cases. Other traders are taking profits after the 92 points gains made yesterday after the upbeat jobs numbers from the United States. The volume in the futures market is a bit low today because most investors in the US are celebrating the Independence Day.
In a report released today, analysts at Bank of America said that they remained optimistic in US equities even if the number of coronavirus cases continue to rise. They said:
“The recovery is picking up steam, but rising US case numbers are set to lead to stumbles along the way.”
In the report, they cited some of the “most hated” stocks as potential areas for growth. These include banks, value stocks, growth stocks, and airlines as potential beneficiaries of the recovery.
Just this week, we recommended against investing in companies in the energy, banking, and airline business. For energy, we said that the volatility in the oil market and high debt makes these companies difficult to invest in. Also, with the world transitioning to clean energy, we expect that oil companies will be forced to pay higher taxes.
We discouraged against investing in banks in the Dow Jones because of potential for negative rates. On airlines, we believe that world economy will take a longer period to recover. For example, many countries, especially those in Europe have barred the US from travelling there. Similarly, other countries have put in place quarantine measures, which is not favourable.
The Dow Jones index is trading at $25,805, which is slightly above the 50-day and 100-day exponential moving averages. The price is also above the ascending trendline that is shown in black below. Also, it is slightly above the 61.8% Fibonacci retracement level. I expect the index to continue rising as bulls attempt to test the 78.6% retracement level at $27242 as greed returns to the market.
On the flip side, a move below $25354 will invalidate this thesis. This price is along the 61.8% retracement, along the 50-day and 100-day EMA, and slightly below the ascending trendline.