Dow Jones Industrial Average claws back into into the green on Wednesday, pushes over 39,000.00


  • Dow Jones climbs in the midweek session as other indexes flounder.
  • A quiet schedule on the economic calendar for the day leaves equities adrift.
  • Coming up on Thursday: US PPE, Retail Sales data.

The Dow Jones Industrial Average (DJIA) found topside momentum on Wednesday, tapping into an intraday high of 39,200.00 as the index outperformed its peers in the S&P 500 and the NASDAQ Composite. The NASDAQ Composite is down close to half a percent on the day, with the S&P 500 testing into the red about a sixth of a percent.

A quick plunge late in the American trading session dragged the Dow Jones down into a new daily low near 38,927.00 as thin markets churn on a notable lack of volume. The quick bearish move was faded equally as fast, and the Dow Jones is pushing back into topside territory on a technical fade. The Dow Jones hit the closing bell just above the 39,000.00 handle at 39,043.32, gaining a scant tenth of a percent on Wednesday.

A thin showing on the economic calendar for Wednesday leaves equities in the lurch and struggling to find firm momentum in either direction. Markets will be gearing up for Thursday’s US Producer Price Index (PPI) and Retail Sales figures. Friday will wrap up the trading week with the next round of University of Michigan Consumer Sentiment indicators.

Despite a softer overall index stance, US stocks are seeing determined gains in the midweek session, with the Energies and Materials Sectors gaining 1.9% and 1.22%, respectively. The notable weak point is the Technology Sector, which is down nearly a full percent as investors pull back from a recent dogpile into tech stocks.

Dow Jones Industrial Average news

As the American market session heads into the back half of the trading day, the DJIA’s top performer is 3M Co. (MMM), which has added nearly 4% to trade into $102.60 on Wednesday. 3M continues to rally after the company recently announced that William Brown, the former leader at L3Harris Technologies, would take the helm at 3M as the new CEO. MMM is down steeply from 2017’s all-time highs above $225 per share, and is recovering into $102.77 per share after dipping to $91.25 earlier this year.

Intel Corp. (INTC) and McDonald’s Corp. (MCD) competed for the biggest loser on the Dow Jones on Wednesday. Both stocks were down around 3.5% on the day. Intel, according to reporting by Reuters, has an unfair advantage over its nearest competitor, AMD, with a specially-issued license issued by the US government under former President Donald Trump. Intel has special permission to supply chips to Chinese tech giant Huawei, and that advantage could come under threat as AMD seeks remediation, even as Intel export volumes to China decline following an increased export ban of technology to China.

Dow Jones Industrial Average technical outlook

The Dow Jones Industrial Average climbed back over the 39,000.00 handle on Wednesday, marking in a fresh high for the week at 39,200.00 and extending a bullish push beyond the 200-hour Simple Moving Average (SMA) near 38,890.00. The 39,000.00 major price level has been a key price point that the DJIA has struggled to escape recently, but a supply zone near 38,600.00 is limiting near-term losses on pullbacks.

The Dow Jones is set for a third straight bullish close on Wednesday, and would mark in a fifth bul candle out of the last six. The index, despite near-term consolidation, is trading firmly into bull country, with the 200-day SMA well below current price action at 35,615.00.

Dow Jones Industrial Average, 5-minute chart

 

Dow Jones FAQs

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.

Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.

There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.

 

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

 

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