The Dow Jones crossed a major resistance level as the market remained optimistic about the reopening of the US economy. Traders also continued to digest the latest corporate earnings, plunging crude oil, and high hopes of a coronavirus vaccine.
Dow Jones rises as US starts to reopen
The biggest catalyst for the current rally is the talk about reopening of the US economy. A number of state governors, including those from New York, Texas, and Michigan have started laying out plans about reopening their economies.
In addition to this, the White House has started laying out plans for national testing. The lack of testing has previously been blamed for the spread of the disease in the United States. Further, other countries like Australia, New Zealand, and those in Europe have started to open up. This is beneficial for the Dow Jones index because its constituent companies make most of their revenues overseas.
At the same time, there are hopes that a coronavirus vaccine will be launched sooner than expected. According to the New York Times, a number of studies have started to produce positive results. The most promising one is the one developed by Oxford University. A few weeks ago, scientists gave a number of monkeys the vaccine and then exposed them to a high dose of coronavirus. These monkeys are still safe.
While it is still early, there are chances that this vaccine will work safely in humans. If it does, the scientists say that it could start being used by September. This is a shorter duration than what analysts were expecting.
Corporate earnings disappoint
The Dow Jones rose even as traders continued to digest corporate earnings. Today, we received results from Caterpillar, 3M, and Pfizer, which are members of the Dow Jones. Earnings from 3M showed that the company made more than $8 billion in revenue. This was higher than the consensus estimate of about $7 billion. It made $2.16 per share and increased its guidance. The company said that some parts of its business saw strong demand because of the pandemic. Its shares rose by more than 4.7% in the premarket.
Revenue from Caterpillar, a Dow Jones component, was relatively weak. The company’s revenue of $10.6 billion was 21% lower than in the same quarter in 2019. This was expected since most infrastructure projects were not active in the first quarter. Its adjusted EPS of $1.60 was lower than the previous $3.25. The company said that it was not possible to guide on the rest of the year.
Other companies that reported were Pfizer, Merck, Pepsi, and Harley-Davidson, which reported better-than expected earnings.
Crude oil hurts the Dow Jones Index
The main laggards in the Dow Jones index were oil and gas companies. ExxonMobil and Chevron stocks were barely moved as the price of crude oil continued to slump. This price is dropping primarily because of the lack of demand. Also, the biggest oil ETF announced it was selling its June futures contract.
On the four-hour chart, the Dow Jones index rose to an intraday high of $24,545. As it did this, the price moved above the important resistance of $24,374, which was the highest level since March 11. The price also exited the ascending triangle pattern. This implies that bulls are in control and could continue pushing the price higher as they aim for the next resistance level at $25,000. This is an important psychological level and also close to the 61.8% retracement level.
This trend will likely continue but any move below $22,900 would invalidate it. This level is at the convergence of the ascending trendline and the horizontal support shown below.