2017-05-02_2019

The Dow Jones Industrial Average has been on a downward trajectory since March. When Donald Trump took office, markets rallied across the board. The Dow Jones quickly hit stratospheric levels, breaking the critical 21,000 level before retreating sharply. From the above graphic, we can see that the bullish sentiment that characterized the premier US index has faded, and continues to fizzle away. The 50-day MA of the Dow Jones Industrial Average is 20,692.74, above the prevailing level of 20,412.34. The crossover took place in early April. For now, the Dow Jones remains well above its 200-day moving average of 19,306.54, but even this technical level is on a collision course with the sliding Dow Jones Industrial Average.

IBM and Goldman Sachs Hammer the Dow Jones

IBM Shares Tumbled and Dragged the Dow Jones Down Sharply

2017-05-02_2020

Understanding the drivers of market sentiment requires a firm grasp of market fundamentals. The recent decline in the Dow Jones was attributed to the sharp fall in the price of IBM stock. It has been noted that a $1 change (upward or downward) will have a 6.8488 point effect on the Dow Jones Industrial Average. This is significant, because when IBM shares plunged 5% after weak earnings, the Dow Jones dropped significantly. It should also be borne in mind that IBM is rated the fifth biggest share in the Dow and it has a larger effect on the Dow’s performance overall. Consider that the big movers on the Dow Jones are those with a heavier weighting – companies that have a greater market value. Earlier in the week, on Tuesday, 18 April 2017, GS (Goldman Sachs) resulted in a drop of 77 points on the Dow, while the index dropped by 114 points overall on that day.

Trading Market Movements

The Dow Jones peaked at 21,115.60 on 1 March 2017. Since then, it has been on a relentless slide, dropping below the key 20,500 level on April 13, 2017, briefly rallying and then plunging again. An expert from Lionexo trading options advises traders to consider macroeconomic variables before plowing into the financial markets willy-nilly. Charles Hornblat Sr. urges traders to adopt a multilateral perspective to the markets when bearish sentiment hits: ‘We are seeing the beginnings of an unraveling of Trump Trade. The pervasive bullishness that characterized the markets after the November 8presidential election are fading somewhat. However, with stocks retreating we also have an opportunity of value-driven investing and trading on the horizon. The Dow, NASDAQ, S&P 500 and other bourses were overly inflated based on sentiment. Now, markets are finding their equilibrium points and investors will certainly find value in these cheaper prices.’

 

Trading Currencies and Bourses across the Atlantic

On the currency trading front, the USD is taking a bit of a battering. The GBP/USD pair is now at multi-month highs following the announcement by Prime Minister Theresa May that early elections would be held on 8 June 2017. This has helped the GBP/USD pair rally towards 1.2800. The GBP/USD pair was heavily oversold following the Brexit decision, considering that it was trading around 1.5000 just prior to the historic referendum. Presently, traders will want to cash in on the short-term overbought GBP before the longer-term oversold GBP kicks in. UK companies are benefiting from cheaper import prices, but exports are declining while the GBP is strong. We are also seeing negative correlations with the FTSE 100 index which is retreating on the back of a strong GBP. From the US perspective, a weaker USD is good for exports, but not necessarily beneficial to imports which are more expensive for UK goods and services.

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