- Summary:
- The Dow Jones index rose as the Federal Reserve started to buy fallen angels. These are corporate bonds for companies that have recently been downgraded
The Dow Jones index edged higher as the market reacted to important news about trade and the Federal Reserve.
Federal Reserve starts buying corporate bond ETFs
The Dow Jones index gained by more than 100 points as the Fed starts to buy its long-awaited corporate bonds. The program, christened as the Secondary Market Corporate Credit Facility, will see the bank buy ETFs from companies for the first time since the last financial crisis. The program will be ran by Blackrock, the biggest asset manager in the world.
Still, some analysts are concerned about the message the Fed will be sending by buying the so-called fallen angels. These are companies whose bonds have been put into junk status by ratings agencies like Moody’s and Fitch. In recent weeks, the bond market imploded, with more than $834 billion worth of issuances.
One of the key considerations is that the bank will not be buying bonds that are trading more than one standard deviation against their net asset value.
Other news moving the Dow Jones
Other details moving the Dow Jones index is the declaration by Boeing’s CEO that he expects at least one major US airline going bankrupt this year. In an interview with CNBC, the CEO said that he expected a big announcement in around September. Airlines like Delta, American, and United have idled most of their planes since people are not traveling.
Another big news was a warning from Dr. Anthony Facuci, who will warn states about the risks of reopening their economies. He is expected to tell them that doing so will cause “needless suffering and death.”
Meanwhile, as I reported earlier, advisors to China’s Xi Jinping have started asking him to do away with the first phase of the trade agreement that was signed in January. The advisors say that China will easily defeat the US, which is now the leading country on coronavirus.
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Dow Jones technical outlook
On the daily chart, the Dow Jones has been moving on an upward trend since March. In this period, the index has been guided by the red trendline shown below. Also, it has remained above the 50% Fibonacci retracement level and slightly above the 50-day EMA. Therefore, bulls will likely remain in control as they attempt to test the 100-day EMA and the 61.8% retracement level at $25,075.
On the other hand, a move below $22,909 will invalidate this trade. This price is at the intersection of the red trendline and the important support on April 21.