Dow Jones Slumps 200 Points amid Risk Aversion

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Dow Jones Slumps 200 Points amid Risk Aversion

US indexes had performed badly yesterday, with the Dow being the one who was hurt the most. The price slumped more than 200 points, top tick to bottom tick, as the tensions between the US and North Korea continue to be at high points. Binary options activity had been extremely intense yesterday as the move progressed on the downside.

Latest comments from both US and North Korea officials had fueled the risk aversion as the situation seems that it will escalate further in the near future.

Technical pattern suggests further continuation might follow

Looking at our chart below, the downside move started on September 1 st , after the release of the US NFP and Unemployment figure, which came below market expectations. The market then gapped lower since over the weekend news regarding a successful test of a hydrogen bomb by North Korea had been released. A consolidation structure followed after the gap, confirming that the buyers were not eager to fill it and regain terrain.

Following the consolidation period, we see an impulsive bearish leg down, which took place yesterday, which account for more than 200 points. Interestingly though, after yesterday slump we see again a consolidation structure building up, so a usual impulsive vs. corrective move structure, which could signal additional selling might follow.
If the political tensions will escalate further we expect the price to resume the downside and break below the bottom of the current consolidation. Binary options could be placed in case a breakout occurs, so there is a lot of profit potential on the table.

The US equity market is in a very bad technical position and current downside risks might trigger a stronger wave of selling as the prices are still located around all-time highs.
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Business

Updated March 19, 2020 08:00:30

The New York Stock Exchange says it will temporarily close its trading floor and move to electronic trading because of the coronavirus pandemic. All electronic trading will start on Monday.

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Overnight, US stocks deepened their sell-off and the Dow Jones index erased the last of its gains since the inauguration of President Donald Trump, as the coronavirus threatens to plunge the world into a global recession.

Key points:

  • The Dow Jones Industrial Average fell nearly 5 per cent in morning trade
  • The Trump administration is planning to send US$1,000 cheques to Americans
  • The US Senate vowed to pass even stronger stimulus measures

The Dow Jones Industrial Average fell 1,338 points, or 6.3 per cent to 19,899, the S&P 500 lost 131 points, or 5.2 per cent to 2,398 and the Nasdaq Composite dropped 345 points, or 4.7 per cent to 6,990.

Massive government and central bank stimulus failed to stem the panic.

Mr Trump’s request for Congress to approve $US500 billion in cash payments to taxpayers, along with $US50 billion in loans for airlines, did little to stem the rout.

Trading in the S&P 500 was halted for 15 minutes at the open after it dropped more than 7 per cent.

The S&P 500 has lost more than 30 per cent since its record closing high last month.

The Dow Jones index fell more than 10 per cent earlier in the session but ended off its lows.

Shares in airline maker Boeing fell after it called for a $US60 billion lifeline.

The price of oil plunged by nearly one quarter to its lowest level in 18 years.

US crude oil fell 24 per cent or $US6.58 to $US20.37 a barrel.

Spot gold was also caught up in the selling, falling $US30 to $US1,498 an ounce.

European share markets were also hard hit.

The FTSE 100 in London lost 4 per cent or 214 points to 5,081.

The pound plunged 5 per cent to its lowest level against the greenback in more than three decades.

The Australian dollar fell 3.6 per cent to 57.79 US cents as the greenback surged on promises of more US stimulus.

In futures trade, the ASX SPI 200 has come off its lows to 4,834, down 80 points or 1.6 per cent.

Later today, the Reserve Bank is expected to cut interest rates to a new record low and commence a government bond buying program to help the economy cope with the economic impact of the coronavirus.

UK, France stimulus measures

In addition to measures in the US, Britain launched a 330-billion-pound ($666 billion) rescue package for businesses threatened with collapse.

France, which went into lockdown on Tuesday, is to pump 45 billion euros ($74.4 billion) into its economy to help companies and workers.

Still, forecasters at banks are projecting a steep economic contraction in at least the second quarter.

Governments are taking draconian measures to combat the virus, restricting movements, adding to market concerns.

US Senate digs in to formulate ‘bolder’ relief

Meanwhile, US Senate Majority Leader Mitch McConnell expected the chamber on Wednesday to pass an economic relief bill already approved by the House of Representatives.

Coronavirus questions answered

He also said the Senate would then work on legislation aimed at aiding small businesses, giving Americans money directly and helping some industries during the coronavirus crisis.

“So while I will support the House bill in order to secure emergency relief for some workers, I will not adjourn the Senate until we have passed a far bolder package that must include significant relief for small businesses all across our country,” he said.

“Everybody understands we aren’t leaving until we deliver it.”

Senator McConnell said the bill that senators were drafting would provide an “historic injection of liquidity and access to credit” for small businesses, while loosening the bureaucracy for lenders working with the federal government.

What the experts are saying about coronavirus:

The senators are also looking at the “best pathway to put money directly in the hands of the American people … as quickly as possible” and “targeted relief for key industries that are shouldering an outsized burden from the public health directives,” Senator McConnell said.

He said the bill will include measures to get “more tools in the hands of healthcare providers, removing barriers to treatment, and helping researchers develop therapeutics and vaccines”.

To prevent the spread of the virus amongst themselves, he urged senators to enter the chamber later on Wednesday, vote on the House bill, and then leave so “we don’t have gaggles of conversation here on the floor.”

Dow Jones Hits New Record Highs! Can It Sustain Its Rally Amid Risk Aversion?

While the Dow Jones Industrial Average Index closed over 330 points or 1.16% higher to 28,868.8 yesterday, it would seem that the stock index has a bearish road ahead of it today. Dow Jones CFDs dropped like a rock in today’s Asian session as risk aversion dominated market sentiment. The stock index initially tapped new historic highs at 28,918.6 before aggressively falling more than 358 points to 28,558.1.

Risk Aversion to Dominate Today’s Trading?

The sell-off was across other equities markets with the Nikkei 225 and Hang Seng index also suffering losses in today’s morning session. Risk aversion dominated this morning’s trading. This was brought about by news that the US killed Iranian General Soleimani in an air strike attack in Baghdad airport. He was a key military official in the Middle East who was said to have approved the attacks to the US embassy in Iran last week.

Investors are now at the edge of their seats after Iran warned against a retaliation.

Yesterday, gains on the Dow Jones were led by Boeing with a 7.56% uptick. Apple came in second with a 6.70%. Gain. In third was Goldman Sachs with a 4.39% profit. If risk aversion carries on to the New York session, it will be unlikely for these stocks to extend their gains in today’s trading. However, we do have some reports from the US that could help provide equities market with some support.

ISM Manufacturing and FOMC Meeting Minutes Due Today

Later today, we do have the US ISM manufacturing PMI report for December due at 3:00 pm GMT. It is seen to come in at 49.0 for the month. Meanwhile, the FOMC meeting minutes of the Fed’s most recent meeting is due to come out at 7:00 pm GMT.

Better-than-expected data or optimistic FOMC minutes could be bullish for stocks. On the other hand, disappointing data or a pessimistic Fed could only fuel the sell-off even more.

Dow Jones Outlook

On the hourly time frame of Dow Jones CFDs, we can see that the uptrend on the index is still intact. Connecting the lows of December 10, December 11, December 12, and December 31 shows that the Dow could pullback to support at the rising trend line at 28,557.0. This price also seems to coincide with the 61.8% Fib level when you draw from the low od December 31 to today’s high. If support at this price does not hold, we could see the Dow Jones fall to 28,036.0 where it previously hit resistance.

On the other hand, reversal candles around the Fib levels could mean that the stock index is on its way to retest its highs around 28,900.0.

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Dow Jones, hourly chart

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