Greed is returning to American equities. The fear and greed index ended the day at 66 yesterday, which is substantially higher than last week’s low of 34. The put and call options, market momentum, and junk bond demand have all moved to extreme levels while safe haven demand, stock price breadth, and market volatility are all at neutral. This greed is happening in reaction to the Covid vaccine, higher crude oil prices, and the election.
Dow Jones points lower
The Dow Jones index lost 30 points in a thinly traded market day yesterday. The downward trend is continuing in the futures market, where the index is down by more than 200 points. The S&P 500 and Nasdaq 100 index are also in the red today.
The decline is mostly because of worries that the Covid vaccine has a long way to go. For example, as I wrote yesterday, the hardest part for the mRNA vaccine by Pfizer, will be in its logistics. That is because the vaccine is temperature sensitive, which means that the process of administering it will be longer than expected.
The Dow Jones is also falling because of sector rotation. As it fell yesterday, the tech-heavy Nasdaq 100 index rose by more than 232 points.
DAX index and FTSE 100 futures fall
Indices in Europe are also falling today. DAX index futures are down by more than 0.80% while those tied to the FTSE 100 are down by more than 1%. This decline is happening as traders watch out for key corporate earnings today. In Europe, among key companies that will release their earnings are Siemens, Deutsche Telekom, and Merk. The three firms are DAX index constituents. In the UK, among the firms to watch will be Shell, Burberry, WH Group, and National Grid.
Also, investors will be watching out for Tui, the embattled travel company. According to the Financial Times, the company, which is the biggest tour operator in Europe is in a stand-off with Greek Hoteliers. It owes millions of pounds to the companies, which puts its business at risk.
European and American stocks are not the only ones in the red. In Asia, the Hang Seng index fell by more than 0.25% while in Australia, the ASX 200 fell by more than 0.25%.
Dow Jones technical outlook
On the four-hour chart, we see that the Dow Jones has started feeling pressure. The index is trading at $29,232, which is below this month’s high of $30,097. The index is above the 50-day and 100-day moving average, meaning that the rally could have gotten ahead of itself. It is also slightly above the 23.6% Fibonacci retracement level.
Therefore, I suspect that the index will keep falling as bears aim for the 38.2% retracement level at $28,543 before bouncing back to above the $30,000 level.
Dow index technical chart