Risky market sentiment on the US markets continues to wane, amid surging coronavirus cases and mounting legal challenges to the outcome of the US Presidential Election. Concerns over a lack of urgency in initiating and passing a new stimulus plan are also weighing on the market. This has contributed to a 0.14% slide on the Dow this Friday as at the time of writing.
Now, this is the situation. The markets have priced in a coronavirus vaccine launch for December or the 1st quarter of 2021. There is far more demand for the vaccines than the companies can presently meet. The Pfizer/BioNTech vaccine has special cold chain storage needs that could limit its deployment. The US government has bought the entire vaccine supply from Moderna Inc in advance. Unless the company can ramp up production for worldwide use, it is unlikely that the vaccine will be globally available for a long time. In the meantime, the coronavirus is continuing to surge across the world. Data surrounding labour and manufacturing conditions from around the globe have not trended too well lately.
In the US, the presidential election appears far from being decided as legal challenges mount from the Republican side. In 2000, it took till the middle of December to get an outcome. History may repeat itself here. As long as there is still no official declaration of a winner and there is no transition in progress, there is very little chance of any discussions on a new coronavirus stimulus package.
Smart investors know this and hate nebulous situations. That is why there is so much caution in the Dow Jones and other US markets. Four years ago, the markets were already abuzz the week after the election as there had been a concession by the Democratic candidate. Things are different this time around. Only an official declaration of a winner will calm the nerves of cautious investors and lead to increased market activity.
We could see more market caution heading into December.
Technical Outlook for Dow Jones
Dwindling sentiment for risky stocks and investment flows into the bond market has been this week’s story for the Dow Jones. This caused abortion of the expected projection above the 30100 all-time high following the break of the bullish pennant pattern. The slide on the Dow for three consecutive sessions could still extend into the 4th day this Friday, even though the Dow is off intraday lows after price bounced on the 29255 support level.
Follow-through buying is required to extend this bounce towards the 29662 resistance, which serves as the immediate upside target. Re-establishment of the uptrend on the Dow requires that 29662 and 30100 be taken out by buyers, in that order. This would also continue the measured move from the breakout of the bullish pennant.
On the other hand, a breakdown of the 29255 support line continues the retracement from the all-time highs. Downside targets may be seen at the 50% Fibonacci retracement from the recent swing of 29 October to 9 November at 28195. This retracement move would require that 28979 (12 October high and 13 November low) and 28746 (28 August high) are taken out. The 61.8% Fibonacci retracement at 27777 could also become a viable target if the decline is more extensive.
Dow Jones Daily Chart