Dow Jones: Dead Cat Bounce Sensed as Fear and Greed Remains Neutral
Dow Jones futures are rising today as traders attempt to buy the dips after sharp declines in recent weeks. The futures are trading at $27,623, which is significantly below last month’s high of $29,000. Other American equities are also rising, with the Nasdaq 100 and S&P 500 futures rising by 0.56% and 1.43%, respectively.
Is this a dead cat bounce?
Some analysts believe that the jump of the Dow Jones is a dead cat bounce because there is no major cause of the rally and the fact that the US dollar is trading at multi-month highs. Indeed, market risks are continuing to rise.
For example, the likelihood that a coronavirus vaccine will come to the market soon were dealt a major hurdle after AstraZeneca announced that it would pause trials of its vaccine with Oxford University. The company said that pausing the trial was necessary because a volunteer had developed an illness.
Analysts have long argued that a coronavirus vaccine will be important for the world to go back to normal. However, the new case means that regulators will be keener to ensure that the vaccine they allow will not have effects on users.
At the same time, the ongoing tussle between the United States and China is a major risk for the Dow Jones. In an interview, Trump threatened to fully decouple the two countries in a move that would have serious impacts on companies in the Dow. The US has also continued to attack Chinese companies like Tik Tok and SMIC, the largest chip manufacturer in China.
Fear and greed index and Buffett indicator
Meanwhile, the closely watched fear and greed index points to more declines in US stocks. The index has recently managed to move from the extreme greed section of above 70. As shown below, the fear and greed index has moved to the neutral level of 56. This usually means that investors are not ready to go back to the market.
As such, there is a likelihood that the Dow Jones and other key indices will fall in the near term until the index turns to extreme fear. The same situation is true when you look at the Buffett’s indicator which shows a strong gap between market cap of stocks and the US GDP.
Dow Jones technical outlook
The daily chart shows that the Dow Jones is attempting to bounce back after the index reached a low of $27117. Interestingly, this price is along the ascending trendline that connects the lowest levels on May 15, June 29, and July 30 and 31. Another important fact is that the price has managed to move below the 50-day and 25-day moving averages.
Therefore, while the price remains bullish above this trendline, there is also a possibility that it will drop as investors remain worried about the market. If it does drop, the next target for the Dow will be the psychological level of $27,000. On the flip side, a move above the 25-day EMA at $27,920 will invalidate this trend.