June 25, 2020

Special Report: Stocks Lose Momentum

Special Report: Stocks Lose Momentum

The Dow Jones futures are trading lower as market sentiment continues to turn negative. Investors are worried about the spike in coronavirus cases and the recent global growth forecast from the IMF. Significant worsening recession and slow economic recovery are on the cards according to the new forecast by the IMF.

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What has adversely impacted the optimism is the reverse in the pace of virus cases. Investors are avoiding riskier assets, and Wall Street is in desperate need of good news on the coronavirus vaccine front. There was so much optimism about the reopening of the global economy and resuming economic activities. Still, the fact that we must start closing stores in hotspots due to the spread of coronavirus has sent shivering waves.  

The S&P 500 futures along with Dow Jones futures are likely to remain sensitive due to rise in geopolitical tensions triggered by Donald Trump. Investors were already highly concerned about the fragile US-China trade relation, and these new fresh tariff threats on Europe have spooked them further. The White House could not have picked any better time to produce another fear-mongering headline for the US stock markets.

Trump is weighing new tariffs on $3.1 billion of exports from the UK, Spain, France, and Germany. This also comes at a time when the EU is debating if it should bar travellers from the US because of their inadequate measures to control Covid-19. This much rise in geopolitical tensions is going to keep the stock market rally strictly in check. Perhaps, it is not a stretch to say that the upside is more limited for coronavirus stock market rally and there is more risk for a major sell-off given the current circumstances.

The global stock market has paused its rally. Australian, Korean, and Japanese stock markets closed in negative territory because there is no appetite among investors for riskier assets. European Futures are also trading sharply lower and likely to suffer more pain as the day continues.   

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DJIA Index And S&P500 Index: Market Breadth

The DJIA index market breadth shows a significant drop in bullish momentum, yesterday there were only 27% stocks above their 200-day moving average.

The S&P 500 index’s market breadth hasn’t changed much. Still, 34% of stocks are trading above their 200-day moving average.

Dow Jones And S&P 500 Futures Today

The Dow Jones futures are trading mostly flat, the DJIA index’ is set to face many whipsaws today. The Dow Jones futures have traded between gains and losses during the early morning price action, and this shows bulls may not be able to hold the momentum today.

The Dow chart shows that the Dow Jones’s price has failed to break above the 200-day moving average on a daily time frame, a time frame that is mostly associated with swing traders. The next significant challenge for the DJIA price is the 50-day moving average, and if the Dow Jones Industrial average fails to stay above this, it will indicate more weakness for the Dow stocks. Bulls are still likely to hold on to their positions because the Dow price is still well above the 100-day moving average.

The Dow Jones futures weekly chart shows that the price is firmly below the 50 and 100-week smooth moving averages. This is an immensely bearish sign from a bigger time frame which usually prevails over other time frames.  

The S&P 500 index is still holding on to its weekly gains in relative perspective, but weakness has started to surface. The S&P 500 futures show that the price is near its 50-week moving average on a weekly time frame.

Stock Market Rally

The US stock market rally has come to an end—for now. Wall Street never loved this rally. There have been so many questions about this rally, and I guess speculators must be saying that we have warned about the potential threat of a spike in coronavirus cases as the global economy reopens.

The swings in the US stock market have been violent yesterday, and they are likely to get worse under the current circumstances. Investors are eagerly hedging their bets, and this is the reason that we have seen a sharp increase in the volatility price index and of course, are the ultimate safe haven-gold prices. The VIX index surged over 7%, and the volatility index for the European stocks spiked nearly 18%.

Gold prices were just short of $1,800, made high of 1,779 and the recent retracement is mainly due to the strength in the dollar index that is attracting some safe-haven bets. The upcoming US final GDP q/q is likely to bring higher volatility along with the unemployment claims data. Investors are expected to punish US stocks and favour gold if the US unemployment claims data fail to impress.  

The S&P500 index plunged yesterday by 2.59%%, and the Dow Jones declined by 2.72% yesterday. The energy sector led the losses for the S&P500 index, and all 11 sectors closed in negative territory. Only 17 stocks posted gains, and the rest of them were beaten badly. Norwegian Cruise dragged the index most, and it had the largest move as well. So far this month, the S&P 500 is mostly flat.

The S&P 500 chart shows the biggest daily percentage losses for the index and for the Dow Jones since June 11.

The NASDAQ composite index is also known as the tech-savvy index also declined by 2.03% yesterday.

Coronavirus: Trump To End Federal Funding For 13 Sites

Coronavirus situation continues to worsen in the US, especially in Texas, where hospitals are reaching their capacity levels, and 5,500 new cases were reported in one day in Texas. This comes at a time when Trump administration is set to end the federal funding for 13 Covid-19 testing sites as CNBC reported on Wednesday. Sadly, Texas is one of them.

The decision seemed somewhat in line with Trump’s recent comments in Oklahoma when he urged the medical community to “slow the testing down”. During his campaign rally when he talked about ending coronavirus tests.

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New York, Connecticut, and New Jersey have decided to impose 14-day quarantine for those who travel from US hotspots. Although the measure is necessary and implemented for the right reason, it is going to leave adverse economic prints.