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Brief: Dow Jones, DAX Index in a Dead Cat Bounce as Nikkei 225 Slides

US futures are bouncing back today as traders wait for important corporate earnings from Facebook, Google, Apple, and Amazon. Dow Jones, S&P 500, and Nasdaq 100 futures are all up by more than 1%. By rising, they have erased some of the losses made yesterday.

In Asia, the Nikkei 225 index has fallen by more than 0.50% as traders react to the Bank of Japan (BOJ) interest rate decision. As expected, the central bank left its policy framework intact, with interest rate at -0.10%. It also pledged to continue supporting the economy as it goes through its worst crisis in decades. Notably, the bank also downgraded its economic forecast for the year.

The best performers in the Nikkei 225 are Nippon Electric Glass, Sumitomo Dainnapon, Sony, Hitachi, and Hino Motors. These companies have risen after they released strong earnings. On the other hand, the worst laggards in Nikkei are Tokuyama, Hitachi Construction, Toho, and CyberAgent.

In the United States, the Dow Jones and S&P 500 are rising ahead of key earnings. In addition to the four of the five FAANG companies, the indices will react to other companies like Comcast, American Tower, Starbucks, and Activision Blizzard. The indices have also risen because the US dollar index is relatively lower than where it was yesterday.

Meanwhile, in Europe, futures tied to the DAX index and FTSE 100 have gained a few points after they all fell by more than 3% yesterday. The indices are rising even as major economies in Europe start their partial lockdowns. Yesterday, Germany and France announced that some businesses will need to close through December as they try to limit the spread of the disease. The number of people gathering will also come down.

Perhaps, the DAX index is rising because of the upcoming ECB interest rate decision. Analysts expect the bank will leave interest rates unchanged and possibly hint at more stimulus. The notable DAX index constituents to watch today will be automobiles like Daimler and BMW and SAP.

In the UK, FTSE 100 futures are rising because of the rising hopes that the UK and the European Union will reach a deal.

Dow Jones technical outlook

In our yesterday’s report, we noted that the Dow Jones has formed a head and shoulders pattern. Yesterday, it dropped below the neckline of this pattern. It has also moved below the 15-day and 25-day exponential moving averages. Also, the price has moved below the 78.6% Fibonacci retracement level.

Therefore, I suspect that even with the today’s bounce, the price will continue falling as bears aim for the 61.8% retracement level at $25,235. In this case, the stop will be at $27,263 level or the neckline of the H&S pattern.

Dow Jones technical chart

Dow Jones