Speculators Pile into Stock Markets as Global Economy Turns the Corner

The Dow Jones Index was trading around the 24,500 + mark on Monday, May 18, 2020. The index rose sharply higher, up 3.7%, or 870 points on the day, marking a dramatic turn in an otherwise bleak 2-month spell. Over the past 1 month, the Dow Jones Index is up 3.88%, but its 3-month performance (up to May 18, 2020) is down 16.43%. For the year-to-date, the Dow Jones Index remains in the red the tune of 13.91%. The top 5 performers in the index include US airline giant Boeing Co, up 11.48%, Dow Inc up 8.97%, Raytheon Technologies Corporation,  up 8.42%, American Express (News - Alert) Corporation, up 7.59%, and Exxon Mobil Corp up 7.38%.

The sharp rise in stock prices heading towards the midpoint of 2020 is due in large part to optimism about a vaccine for the global pandemic. Moderna Inc published the results of its trial vaccines which indicate that it creates an immune-system response in the body. Global markets reacted instantly to the news release and companies which have heretofore been slumbering rallied, including cruise line operators like Carnival Corporation (up 17.95%), Royal Caribbean (up 19.07%), Norwegian Cruise Line (up 20.97%), alongside other airline companies like American Airlines (up 8.32%), and Delta Air Lines Inc (up 12.98%). Other industries also celebrated the news, and stocks rallied accordingly.

The price of commodities also climbed heading into the new week, with WTI crude oil up at $31.88 per barrel, up 8.32% on the day and Brent crude oil at $35.01 per barrel, up 7.72%. Natural gas rose sharply to $1.84 per MMBtu, while Heating Oil was trading at $8.86 per gallon, up 9.63%. On a day where stocks, indices, and currencies were rallying, commodities like gold took a back seat. The world’s favorite safe-haven asset – gold - retreated 1.30% on the Comex as investors and traders ploughed back into the stock market – buying up substantial volume and boosting confidence in the bourses. For 2020, gold is up 13.91% and the precious metal rose 18.83% during 2019, but was down 1.15% in 2018 when the market was roaring. Over the past 6 months, gold has delivered on expectations with an 18.40% return. Despite the bullishness of the global stock markets, gold has held its own with 5-year returns of 44.54%.

The recent performance of the Dow Jones Index is notable. The 50-day MA (moving average) is 22,836.79, and the 200-day MA (moving average) is 26,344.90. The current level of the DJIA is above the 50-day MA, at 24,568.40. The Bollinger Bands are particularly telling, with the lower band at 23,047.84, the upper band at 24,687.79, and the middle band at 23,867.82.  The middle band of the Bollinger bands – 23,867.82 is a simple MA (moving average) of 20 periods, at 2 standards deviations (95% of price data falls between the bands) around the moving average. The way this information is interpreted is as follows: traders would watch the current level of the Dow Jones Index, and as it approaches the upper Bollinger band limit of 24 582.35, the simple moving average over 20 periods would indicate that the market is overbought.

This could present as a reversal in the Dow Jones, with a sell-off taking place as the level retraces back towards the lower Bollinger band at 23,047.84. At the time of writing, the Dow Jones Industrial Average (24, 543.83) had not broken above the upper limit of the Bollinger band, and provided the simple moving average continues to show a rising trend, it is possible that both the Dow Jones Index and the upper Bollinger band will continue rising, without a reversal. If the strength of the recovery outpaces the simple moving average presented by the Bollinger band, a reversal to the downside will not take place, on the proviso that there is robust demand for stocks in the market.

Bullish sentiment is also evident with the volatility index, indicated by the ticker VIX. On May 18, 2020, the VIX retraced by 2.97 points, down 9.31%, indicating a renewed sense of confidence in the stock markets. For the year-to-date, the US Dollar Index is up 3.40%, but its 1 month performance from April 18 – May 18 is down 0.29%, indicating that traders and investors are not ploughing into greenbacks like they were when the pandemic arose.

Another index that is used to evaluate the strength or weakness of the market is the DXY (US dollar index) particularly as it relates to the US dollar relative to other currencies. At the time of writing, the US dollar index was trading in a tight range between 99.58 and 100.47. The US dollar has come under selling pressure as a result of rising oil prices. The relationship between crude oil and the USD tends to put pressure on the greenback when prices are rising. The US dollar index forfeited gains that it made in the previous week, and talk of a $3 trillion stimulus package in the House, and the printing of money by the Fed was generally perceived as positive by global markets, helping to relieve pressure on stock markets all over the world, and in so doing reducing selloffs of foreign currencies.

 

Author:


 

Todd Wilber is a consumer goods entrepreneur with lots of hands-on experience in business start-ups, customer service, marketing and CyberSecurity. As a freelancer, I worked for Hackernoon.com, Homebusinessmag.com,Valuewalk.com, and Entrepreneur.com He is equally an experienced writer and public speaker. You can find him on Linkedin.