- Summary:
- Dow Jones can sustain the momentum according to a new report by JP Morgan and Credit Suisse. JPM argues that there is enough dry powder to push it higher
The Dow Jones rallied by more than 183 points in the futures market, adding to the 100 points made yesterday. The blue-chip index joined other global indices in the rally. In Germany, the DAX 30 rose by almost 4% while in France, the CAC 40 index rose by more than 2 per cent.
Dow Jones rally just starting
The current rally of the Dow Jones has surprised many analysts because it is happening at a time when the US economy is facing its worst recession in years. This has led to many analysts to predict that this is a bear market rally.
However, the rally is just getting started according to data crunchers at JP Morgan. The analysts believe that US stocks will get a boost because of the amount of cash in money market funds. They estimate that these funds have more than $1.2 trillion. Additionally, fund managers have more than $591 billion in dry powder to deploy in the market.
In the report, the analysts said that non-bank investors, including households and pension firms have allocated about 40% of their funds in equities. They estimate that this will rise to about 49%.
Another factor that could power the Dow Jones higher is that speculators have continued to increase their short positions on stocks. Short interest in the biggest S&P 500 ETF have increased to the highest level since March. US stocks could receive a boost as short sellers unwind their positions.
Credit Suisse predicts a V-shaped recovery
The Dow Jones could gain as the world economy recovers. According to Credit Suisse, there is a possibility that the world will see a V-shaped recovery. Analysts had already ruled out this type of recovery and predicting a U-shaped recovery. The analysts wrote:
“For value to outperform sustainably, we need to see a significant pickup in economic growth -– which, in the current environment, means believing in more of a ‘V’ shaped recovery than is currently priced in.”
Dow Jones gains as civil unrest increases
The Dow Jones rose even as civil unrest increased in several American cities following the untimely death of George Floyd. A number of cities in the country have initiated curfews and the amount of vandalism has continued. In a statement yesterday, the president said that he was considering sending in the military to deal with the rioters. Analysts believe that this will not have any meaningful impact on companies in the Dow Jones.
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Dow Jones technical outlook
The Dow Jones is trading at $25,672, which is close to Thursday’s high of $25,809. On the daily chart, the price is slightly above the 61.8% Fibonacci Retracement level. It is also slightly above the 50-day and 100-day exponential moving averages. Therefore, the upward trend will likely continue as bulls attempt to test the psychological level of $27,000, which is also slightly below the 78.6% retracement level.
On the flip side, a move below $24,400 will invalidate this prediction. This price is along the important 50-day EMA.