The Dow Jones futures are trading higher after the stock crash yesterday when the Dow plunged more than 1800 points. Statistically speaking, whenever the Dow experiences a drop of this magnitude, it is normal to experience some bounce the next day. I suspect that the bounce is a dead cat bounce because the sentiment is further dented by the latest comments from the chief economist of the IMF who said that the world economy is growing much slower than anticipated and that the scars of the coronavirus pandemic may linger for a long time to come. In addition to this, we also had the UK’s GDP m/m data tank. The UK’s GDP has now contracted by 20.4% during April.
Investors are concerned about the likelihood of a so-called second wave of coronavirus in the US and whether the US economy will come to a halt once again. The chances of such a scenario repeating are minuscule because the US is much better equipped to deal with the situation now as opposed to during the initial outbreak when everything was unknown. The current spike in coronavirus cases in the US comes from the not having the disease completely controlled before states opening their economies and from Trump’s tweet about the killing of George Floyd, triggering civil unrest in the US. The current sell-off appears to be more of a correction for US stocks with a potential for returning to their Covid-19 lows — when the stock market crashed— due to excessive exuberance.
However, we should take note that investors were happy to buy the S&P 500 stocks when they were selling at a premium, and today they have an opportunity to buy the same stocks at a deep discount. These stocks still have the potential to become even cheaper if the sell-off continues. The market breadth of the S&P 500 still seems to suggest that the bull momentum has massively lost its mojo.
Dow Jones 30 LONG (Buy)
ENTER AT: 25844