Dow Jones 38.2% Fibonacci Test
The Dow Jones Industrial average saw a $1,351 gain today, up +6.38% from an opening price of $21,468 with a close of $22,552. Price has also now risen +24% off the recent $18,213 low indicating that a short-term bull trend is now in play.
After yesterday’s doji candle(trader indecision candle), price today jumped from the 23.6% Fibonacci level up to, and found resistance at, the 38.2% Fibonacci level which indicates that after a day of indecision traders have now shifted to bullish price sentiment, at least in the short-term. This strong move came as the Senate unanimously passed the coronavirus economic relief package in a 96-0 vote which gave traders confidence that the bill will be passed by the House, thus preventing a severe economic fallout from the coronavirus as Americans and companies affected by the coronavirus will now have the financial support that they need to support them until this pandemic is over. This fiscal stimulus appears to be more important to traders than the massive Federal Reserve intervention over the past three weeks which has seen a return to a 0% Federal Funds Rate, trillions in credit line extensions to banks as well as a relaunching of Quantitative Easing which this time around equates to an unlimited amount of mortgage-backed securities and Treasury bonds now being purchased by the Fed.
As for the Dow, I’d like to see price rise and close above the 38.2% Fib before becoming too optimistic that a low has been made. As long as price is trading below the 38.2% Fib the trend is still technically bearish. If price does manage a close above the 38.2%, the next important level to beat is the 50% level which is the halfway point between the all-time high and the recent low, a move above that level would represent price having regained half of the losses seen during this record-breaking selloff over the past 5 weeks. From there, a rise above the 61.8% Fib level would be needed to put price back into a bullish trend from a technical standpoint.
The RSI indicator shows increasing momentum with a rising RSI line, but a move above the center line at the 50 level is needed for upward momentum to hold. Until then, price is at risk of rolling back over and maintaining it’s bearish momentum.
The PPO indicator is showing a bullish crossover with the green PPO line rising above it’s signal line which indicates a building of positive momentum, but both lines are still below the centerline at the 0 level which indicates that the overall momentum behind price remains bearish.
For those going long this market right now, a stop-loss is recommended if trading/buying. My recommended stop-loss level is shown in red and is placed just below yesterday’s doji candle where traders were indecisive. This stop-loss level is also just below the 23.6% Fib level. A breach below those two levels would likely indicate that bears are still in control of this market and that the recent optimism this week is being overshadowed by deteriorating fundamentals in the economy.
While the short-term trend this week appears to indicate that the majority of traders have flipped bullish, I’m still hesitant to take a bullish view myself, at least in the intermediate-term. This is due to the record-breaking unemployment claims seen last week which were released today by the Bureau of Labor Statistics and showed that a massive 3.28 million people applied for unemployment last week alone.
Traders appear to have shrugged off this all-time weekly record which smashed the old weekly record by 400%. While their financial needs may be temporarily eased via fiscal stimulus, the number of people filing for unemployment this week is likely to be another number in the millions when those numbers are released next week. These are millions of people unemployed who will likely not be taking their stimulus checks or using their unemployment money to help stimulate the economy. If they are lucky, the combination of the two will be just enough to cover their living expenses and debt payments which many Americans were already falling behind on prior to the coronavirus disrupting economic activity, closing businesses and putting them out of work. The $2 trillion stimulus package amount is based off on the assumption that their time unemployed is temporary and that they’ll be returning to work within 4 months.
With millions of Americans now out of work, the odds of an increase in delinquencies will be rising, as well as added pressure on them to make their rent/mortgage payments. With millions of Americans living paycheck-to-paycheck, many will likely not have the funds needed to make their next rent/mortgage payments as unemployment benefits take an average of two weeks to kick in, as well as the fact that the $1,200 stimulus checks will not be sent out until April 6th at the earliest. The companies that have been forced to shut their doors and lay off staff are also at risk of defaulting on debt as many retailers such as Subway and Cheesecake Factory have already notified their landlords nationwide that they will not be paying April’s rent.
This is likely the beginning of the coronavirus impact on residential and commercial real estate which looks like it will be the next shoe to drop in the economic fallout of the coronavirus. If we learned anything about the 2008 global financial crisis it’s that investors don’t like it when people stop paying their rent/mortgages.
While the intermediate-term view looks dicey, the short-term view by traders is that the Federal Reserve and Trump administration will be doing whatever it takes to prevent another 2008-type of event by going hard and heavy with injecting trillions of dollars into the economy. This may be putting minds at ease in the short-term, but it doesn’t change the fact that we are still seeing a rise in coronavirus case counts with the U.S. just today topping the global list with over 80,000 confirmed cases now in the U.S. We have now topped China and we have not even reached the peak yet in the U.S. outbreak.
While the Federal Reserve and Trump administration are doing all that they can to keep traders from selling, there may come a point in the coming weeks where no amount of stimulus or bailouts will instill confidence in traders to buy. The main pieces of the puzzle that I’m personally waiting for before becoming too optimistic on this market, recovery, and monetary intervention are for case counts to stop rising, states/countries to begin reopening their borders and for companies to re-open their doors as well as report revenue and earnings so that we can get a true view of just how large of an impact this virus is having on them.
Short-term view is now neutral from bearish assuming that the House will pass the coronavirus economic relief package, with the expectation that the recent lows will be tested again in the intermediate-term once more negative economic data is released going forward.
After yesterday’s doji candle(trader indecision candle), price today jumped from the 23.6% Fibonacci level up to, and found resistance at, the 38.2% Fibonacci level which indicates that after a day of indecision traders have now shifted to bullish price sentiment, at least in the short-term. This strong move came as the Senate unanimously passed the coronavirus economic relief package in a 96-0 vote which gave traders confidence that the bill will be passed by the House, thus preventing a severe economic fallout from the coronavirus as Americans and companies affected by the coronavirus will now have the financial support that they need to support them until this pandemic is over. This fiscal stimulus appears to be more important to traders than the massive Federal Reserve intervention over the past three weeks which has seen a return to a 0% Federal Funds Rate, trillions in credit line extensions to banks as well as a relaunching of Quantitative Easing which this time around equates to an unlimited amount of mortgage-backed securities and Treasury bonds now being purchased by the Fed.
As for the Dow, I’d like to see price rise and close above the 38.2% Fib before becoming too optimistic that a low has been made. As long as price is trading below the 38.2% Fib the trend is still technically bearish. If price does manage a close above the 38.2%, the next important level to beat is the 50% level which is the halfway point between the all-time high and the recent low, a move above that level would represent price having regained half of the losses seen during this record-breaking selloff over the past 5 weeks. From there, a rise above the 61.8% Fib level would be needed to put price back into a bullish trend from a technical standpoint.
The RSI indicator shows increasing momentum with a rising RSI line, but a move above the center line at the 50 level is needed for upward momentum to hold. Until then, price is at risk of rolling back over and maintaining it’s bearish momentum.
The PPO indicator is showing a bullish crossover with the green PPO line rising above it’s signal line which indicates a building of positive momentum, but both lines are still below the centerline at the 0 level which indicates that the overall momentum behind price remains bearish.
For those going long this market right now, a stop-loss is recommended if trading/buying. My recommended stop-loss level is shown in red and is placed just below yesterday’s doji candle where traders were indecisive. This stop-loss level is also just below the 23.6% Fib level. A breach below those two levels would likely indicate that bears are still in control of this market and that the recent optimism this week is being overshadowed by deteriorating fundamentals in the economy.
While the short-term trend this week appears to indicate that the majority of traders have flipped bullish, I’m still hesitant to take a bullish view myself, at least in the intermediate-term. This is due to the record-breaking unemployment claims seen last week which were released today by the Bureau of Labor Statistics and showed that a massive 3.28 million people applied for unemployment last week alone.
Traders appear to have shrugged off this all-time weekly record which smashed the old weekly record by 400%. While their financial needs may be temporarily eased via fiscal stimulus, the number of people filing for unemployment this week is likely to be another number in the millions when those numbers are released next week. These are millions of people unemployed who will likely not be taking their stimulus checks or using their unemployment money to help stimulate the economy. If they are lucky, the combination of the two will be just enough to cover their living expenses and debt payments which many Americans were already falling behind on prior to the coronavirus disrupting economic activity, closing businesses and putting them out of work. The $2 trillion stimulus package amount is based off on the assumption that their time unemployed is temporary and that they’ll be returning to work within 4 months.
With millions of Americans now out of work, the odds of an increase in delinquencies will be rising, as well as added pressure on them to make their rent/mortgage payments. With millions of Americans living paycheck-to-paycheck, many will likely not have the funds needed to make their next rent/mortgage payments as unemployment benefits take an average of two weeks to kick in, as well as the fact that the $1,200 stimulus checks will not be sent out until April 6th at the earliest. The companies that have been forced to shut their doors and lay off staff are also at risk of defaulting on debt as many retailers such as Subway and Cheesecake Factory have already notified their landlords nationwide that they will not be paying April’s rent.
This is likely the beginning of the coronavirus impact on residential and commercial real estate which looks like it will be the next shoe to drop in the economic fallout of the coronavirus. If we learned anything about the 2008 global financial crisis it’s that investors don’t like it when people stop paying their rent/mortgages.
While the intermediate-term view looks dicey, the short-term view by traders is that the Federal Reserve and Trump administration will be doing whatever it takes to prevent another 2008-type of event by going hard and heavy with injecting trillions of dollars into the economy. This may be putting minds at ease in the short-term, but it doesn’t change the fact that we are still seeing a rise in coronavirus case counts with the U.S. just today topping the global list with over 80,000 confirmed cases now in the U.S. We have now topped China and we have not even reached the peak yet in the U.S. outbreak.
While the Federal Reserve and Trump administration are doing all that they can to keep traders from selling, there may come a point in the coming weeks where no amount of stimulus or bailouts will instill confidence in traders to buy. The main pieces of the puzzle that I’m personally waiting for before becoming too optimistic on this market, recovery, and monetary intervention are for case counts to stop rising, states/countries to begin reopening their borders and for companies to re-open their doors as well as report revenue and earnings so that we can get a true view of just how large of an impact this virus is having on them.
Short-term view is now neutral from bearish assuming that the House will pass the coronavirus economic relief package, with the expectation that the recent lows will be tested again in the intermediate-term once more negative economic data is released going forward.
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