MOVE can provide an early alert regarding a changing risk sentiment in the bond market but also in in the general financial markets, ahead of the equity markets.
The MOVE Index measures U.S. interest rate volatility. The index tracks the movement in U.S. Treasury yield volatility implied by current prices of 1-month OTC options.
Read more: The MOVE Volatility Index and the Correlation to the S&P500
The US Dollar Index and the Dow Jones Industrial (March-April 2017)
Financial Markets –The General Outlook
After Donald Trump’s election, investors anticipate that high inflation will return in the US. There are some good arguments backing that assumption, including new Trump’s policies regarding tax cuts, higher public investment, and the imposition of tariffs on imported industrial goods. Lower unemployment and higher wages strengthen furthermore the prospect for higher consumer prices in the future. These inflationary anticipations create positive momentum for the US Dollar and the US equity markets. On the other hand, higher inflation means higher interest rates and that signals an escape from the bullish bond market of the past 30 years. It is no secret that since November 2016, 4 trillion USD have flown from the bond markets to the equity markets. Furthermore, as concerns equity markets, the VIX equity volatility remains close to historic lows signaling the continuation of the equity rally, at least for the time.
Chart: CBOE VIX Volatility Chart (S&P500)
Trading Rebates: » Forex Trading Rebates via Forex-Rebates.com
Applying TCI on USDX & Dow Jones Industrial
The Trading Center Indicator (TCI) applied on the US Dollar Index (USDX) and on Dow Jones Industrial Average (DJIA). The chart below shows graphically the daily TCI indications for the period of November 2010 to March 2017. The USDX (upper) chart includes the 89-day simple moving average (SMA), while the US30 (lower) chart includes the 144-day SMA.
It was always difficult for humankind to cope with change, and it is even harder to realize how much the macroeconomic landscape has changed in the past couple of years. The unseen economic impact of the pandemic forced central banks to cut interest rates and boost market liquidity to record levels. In this environment of extreme liquidity and zero (risk-free) returns, the rally in equities and other hard assets was completely reasonable and expected. As reasonable and expected was the correction we saw lately. Let’s not forget that from the March 2020 lows, equities rallied over 100% without a major correction.
Dow Jones Report & TCI Trading Signal
TCI Forecast: DJIA to complete its uptrend in September (↑) starting a new bear market in early October (↓)
Dow Jones has moved considerably lower since July 2015, from 18.137 points in July, 20th now it is trading at 16.102 points. There are quite a few reasons that could explain why the investor’s sentiment has changed from bullish to bearish so rapidly. Nevertheless, what seems to drive the market at this point isn’t hard fundamental data but a fragile investor’s psychology. The US Equity Markets are rising 7 years in a row now, since 2009, and maybe it’s time for a strong correction that will make valuations cheap again.
Is Dow Jones an expensive market today in terms of earnings? Let’s find out how the P/Es and Dividends (%) of the US Markets are formed after the August slump.
Dow Jones, S&P 500 and Nasdaq Earnings Report
These are the P/Es and Dividend Yields of the major US Equity Indices as concerns the valuations of September, 4th 2015.
|
P/E RATIO |
DIVIDEND YIELD |
||||
|
Today |
One year ago |
Today |
One year ago |
||
|
Dow Industrial |
15.41 |
16.18 |
2.66% |
2.20% |
|
|
Dow Transportation |
17.55 |
20.58 |
1.45% |
1.10% |
|
|
S&P 500 |
20.35 |
18.97 |
2.18% |
1.91% |
|
|
Nasdaq 100 |
21.35 |
23.55 |
1.29% |
1.26% |
|
+Today: September, 4th 2015
Dow Jones Industrial and the Duration of the Bull Party
Dow Jones Industrial (Dow 30) is one of the best stock-market indices in the world to test a technical analysis system. It is such an old index that can provide a unique insight into historical data. Dow Jones has entered recently a price area of historical highs. Using fundamental and technical analysis we are going to see what happens next. But let's start with the signal first.
|
MARKET |
INSTRUMENT |
TARGET |
DURATION |
STOP LOSS |
|
|
Dow Jones Industrial Average (DJIA): 14,512.03 (3/22/2013) |
14,850.00
|
Trading Days: +9 / +11 (April, 3 2013) (April, 7 2013) |
Stop-Loss Price: 14,260.00 |
From a Macroeconomic Point of View
The US economy is in a much better condition than 2 years ago. Growth is stable, unemployment is falling and the credibility of the US financial system is improving. What could ruin this nice macroeconomic picture could derive mainly from 2 facts:
Factor-1) The European Crisis
The European crisis is certainly a very important issue for the world economy. In 2013, Europe is officially in recession while the political conditions in the South of Europe are making the macroeconomic environment unpredictable. For the time, the last episode of the European Crisis (Cyprus Crisis) seems to come to an end and during the next couple of weeks, things in Europe can get back to normal.
Factor-2) A Stronger Dollar
As unemployment is falling and the US economy is growing the concerns of FED are moving more to inflation. The US interest rates have only one way to go and that is up. Higher US interest rates given the bad condition of the European Economy could strengthen the Dollar against the Euro to 1.20, but even to 1.0 in the next couple of years. That could jeopardize the macroeconomic prosperity of the US economy. But for the time, Euro is already in oversold levels against the US Dollar and it is expected to remain in the area above 1.2900 for some time ahead. So as concerns the next couple of weeks a stronger US Dollar is not a danger for the US economy and the Dow Jones Industrial that we are interested in.
Global Markets and Nasdaq Composite Report -A Correction is always better than the Formation of a new Bubble
Recently the US stock-markets have witnessed significant selling pressure along with other major stock-markets around the globe. According to many analysts, the equity markets are overpriced while according to some others the growth in the US economy and the corporate earnings justifies even higher market values. As concerns the bonds market, US bonds are under pressure too and as the hedge fund manager Leon Cooperman said: “Investors buying bonds right now are playing with dynamite”.
In this analysis, we are going to evaluate what happens next regarding the Global Markets and especially as concerns the Nasdaq Composite. Whatever is the outcome of this analysis don’t panic if you want to exit the market, you will have your chance to do it the right way.
Cash will be king again, it always becomes king at the end
According to one of our past analysis (some months ago) we have mentioned that the current bullish circle of the global capital markets is coming to an end. This forecast was based on both fundamental and technical analysis. In addition, we said, “Cash will be king again, it always becomes king at the end”. Fortunately for some investors and unfortunately for many others this forecast becomes true.
What Happens Next regarding the US and the Global Equity Markets
In order to evaluate the current market conditions and to be able to forecast what happens next, let’s see first some important facts regarding the US stock-markets:
(a) Basic Reasons why the US Stock Markets should go up (↑)
√ The US economy enjoys stable growth and looks stronger than ever before, since 2008
√ Unemployment is declining and income is rising
√ US corporate earnings are stronger and according to some analysts there are a lot of investment opportunities left in the market (for example Goldman Sachs' analyst David Kostin)
» Check Goldman’s Recent Report on S&P here
√ There is still excessive liquidity in the market driven by the almost zero interest rates
TradingCenter provides essential information and tools for learning and trading the Global Financial Markets. TradingCenter helps investors to improve their skills and their level of understanding regarding core mechanisms of the trading process.
