Date: 21 Dec 2018

US stocks took a dive on yesterday, with the Dow Jones breaching February low and making a new year-to-date low at 22,641, as the Federal Reserve’s plan to continue its balance sheet reduction and the threat of a partial government shutdown fueled investor concerns.

The Federal Reserve (Fed) decision on Wednesday to largely follow its plan for more rate hikes over the next two years and keep its balance sheet reduction plan on “autopilot” alarmed investors already worried about slowing economic growth. The Fed raised the interest rate by 25 basis points (bps) on Wednesday as widely expected by market analysts and lowered forecasts for two hikes in 2019 instead of previous three amid signs of a global growth slowdown.

Adding to the pessimism was the possibility of a partial US government shutdown on Friday, as President Donald Trump told Republican congressional leaders he would not sign a government-funding bill because it fails to include enough funding for border security.

The initial jobless claims in the US rose by 8K to 214K in the week ending December 15 from the previous week’s unrevised level of 206K and beating analysts’ forecast of a rise to 219K. A larger than expected number indicates weakness in the labour market, which influences the strength and direction of the US economy.

 

Top Dow Jones Industrial Average Gainers and Losers yesterday:

Johnson & Johnson (-5.02%), Pfizer Inc. (-0.05%), Intel (-0.07%) among the top Dow Jones gainers for the session.

Walgreens Boots Alliance (-2.73%), United Technologies (-3.67%), Walmart (-3.61%) were among the worst Dow Jones performers of the session.

 

Since the beginning of 2018 until last Thursday close, the US index is underwater with over 6.85% loss and since the start of December, is in a deep dive with almost 11.0% drop. Nonetheless, the Dow Jones Industrial Average (DJIA) continues on weak winds in the week with a drop of over 4.0% and on the daily basis closed red with a 1.18% loss. Furthermore, the index is in a bearish phase since mid-December after the death cross.

On yesterday session, the Dow Jones Industrial Average (DJIA) initially fell with a wide range but found enough buying pressure to trim some of its losses and consequently closed in the middle of the daily range, in addition, managed to close below Wednesday low, which suggests a strong bearish momentum.

The stochastic is showing an extremely oversold market and is displaying a lack of momentum.

The Dow Jones Industrial Average (DJIA) began December with an exhaustion gap staling on a daily resistance at 25,885 and turn south toward November low where it found some support but not enough to push the price back up. The index price continues making lower highs and lower lows all signs of a well-established bearish trend and even breached February low making a new year-to-date low at 22,641. By the recent price action, the Christmas rally is out of the window for this year.

 

UsaInd Dec ’18 Daily Candlestick Chart

UsaInd Dec ’18 Daily Candlestick Chart

 

Market Events to Watch:

Friday, December 21 at 13:30 GMT (08:30 ET): The US Bureau of Economic Analysis is scheduled to release the Gross Domestic Product (GDP) Annualized in the third quarter, which is expected to come in unchanged at 3.5%, the same as registered in the previous period. The GDP Annualized is a gross measure of market activity because it indicates the pace at which a country’s economy is growing or decreasing. Generally, a high reading or a better than expected number is seen as positive for the USD, while a low reading is negative.

Friday, December 21 at 13:30 GMT (08:30 ET): The US Census Bureau is scheduled to release the durable goods orders in November, which is expected to rise to 1.2%, comparing to the -4.4% registered in the previous period. The durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. Generally, a high reading is positive for the USD, while a low reading is negative.

Friday, but at 15:00 GMT (10:00 ET): The US Bureau of Economic Analysis is scheduled to release the Core Personal Consumption Expenditure – Price Index year-on-year in November, which is expected to rise to 1.9%, comparing to the 1.8% registered in the previous period. The “Core” excludes seasonally volatile products such as food and energy in order to capture an accurate calculation of the expenditure. It is a significant indicator of inflation. A high reading is positive for the USD, while a low reading is negative.

UsaInd is a CFD written over Dow Jones Industrial Average futures.

 

Written by Hugo O’Neill, External Analyst

 

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