Dow Jones
It’s a red-letter day in Wall Street. The Dow Jones index is off by more than 290 points in the futures market. The S&P 500 and Nasdaq too have declined by 30 and 47 points respectively.
The Dow Jones is off sharply as reports suggest that the number of coronavirus cases in the United States is rising. The worst-affected states are Texas, Oklahoma, and Florida. In Texas, the number of hospital admission rose by 11% yesterday. At the same time, Beijing is putting more efforts to eliminate the second wave. It has ordered some schools closed and cancelled some flights.
Airline and hospitality stocks are among the worst performers in the Dow Jones and S&P 500. For example, United shares are down by 3.3% while Delta and American are down by more than 2%. Similarly, Carnival, Norwegian, and Royal Caribbean shares also dropped.
If the Dow Jones ends lower today, it will end a three-day winning streak.
The Dow Jones declined as Nancy Pelosi prepares to unveil a large infrastructure bill in Washington today. As we have written before, many companies in the Dow Jones would be key beneficiaries of such a bill. These includes companies like Caterpillar and Walmart. Analysts expect the bill to include at least $329 billion for highways and $10 billion for community health centres.
Donald Trump has also supported a $1 trillion infrastructure bill but the challenge will be to convince republicans to support it. Most of them believe that the bill is unnecessary at a time when the American debt has soared to record levels.
The Dow Jones declined at a time when the Fear and Greed index is at neutral level. Just a week ago, the index was pointing towards greed, which is possibly why the Dow Jones declined.
The fear and greed index measures the sentiment in the market. It does this by looking at the stock price breadth, safe haven demand, stock price strength, put and call options, market momentum, and market volatility.
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On the daily chart, the Dow Jones is trading above the 50-day and 100-day exponential moving averages. It is also above the 61.8% Fibonacci retracement level. This retracement was drawn by connecting the lowest and highest point this year. At this time, the near term outlook of the index is neutral with the key levels to watch being the support at $25,240 and the resistance being at the 78.6% retracement at $27,185.
However, on the four-hour chart, we see that the index is forming a wider bullish pennant pattern after the sharp gains this week. This implies that the index could ultimately breakout higher in the near term.