Dow Jones 50% Fib Resistance and Doji Candle
The Dow Jones Industrial Average opened at $23,690 and closed at $23,719 today for a $285(+1.22%) gain. Price created a doji candle at the 50% Fibonacci retracement level which represents trader indecision at a critical Fib level. A doji candle is where price closes at, or near, the level it opened at with very small upper and lower wicks and resembles a "+" sign. This shows that neither bulls nor bears were able to move price with conviction in either direction and ended up leaving price essentially where it opened. The 50% Fib level is critical due to it being the midpoint from the all-time high and selloff low. A move above the 50% Fib would represent half of the losses seen during this selloff being recouped and give the market a bullish bias, while price remaining below the 50% Fib keeps the bearish trend in play. The price candles this week have all been gray which indicates that price is neutral with no momentum in either direction.
Today's doji/indecision candle came on a day where the Federal Reserve attempted to front-run another bad unemployment data release as a way to prop up the U.S. economy by announcing a $2.3 trillion round of loans for small businesses and consumers, as well as states, cities and municipalities. They announced this loan program just before the unemployment numbers were released which indicates that they new of the numbers beforehand. The goal of the Fed with this latest round of bailout money appears to be an attempt to stem the tide of unemployment claims by incentivizing employers to take on loans(more debt) in order to keep employees on their payrolls. It also provides relief to states who have seen a record surge in unemployment claims which has put a big dent in state coffers.
Today's unemployment data release showed that 6.6 million people filed for unemployment last week and comes as the previous two weeks saw 6.8 million and 3.3 million bringing the total to nearly 17 million filing for unemployment in just the past three weeks. The previous weekly record for initial unemployment claims prior to this virus-induced economic slowdown was 695,000 back in 1982. Not even the 2000 or 2008 market crashes saw this drastic amount of people joining the ranks of the unemployed.
The data release today brings the official unemployment rate in the U.S. to just a little over 5% after starting the year at 3.6%, but the current rate doesn't reflect the true state of unemployment as not all those who have gone unemployed are eligible to receive unemployment benefits, nor are all of those who are eligible able to file due to the surge in filing causing state benefit sites to go down thus preventing everyone who is eligible from filing. The true unemployment rate as compiled by Shadow Stats is likely closer to 25%, or 1 in 4 Americans who are willing and able to work being unemployed.
Even the Federal Reserve's $2.3 trillion loan program announcement today was not enough to convince traders to jump back in to markets as traders are likely losing confidence in the Fed's ability to prevent what is coming in the months ahead for all of the businesses now generating $0 revenue combined with the millions who are out of work and falling behind on bills. It's doubtful that people are going to rush out and spend as indiscriminately or frivously as they were prior to the coronavirus which is what our consumer-based economy needs in order to grow and thrive. Americans are likely going to focus more on catching up on bills, paying down debt and/or saving in general as this virus and the lockdowns associated with it have likely given people plenty of reasons to start taking their rainy day funds a little more seriously, as well as the amount of debt that they are willing to take on in order to fund their lifestyles. There is also the reality that many of the people who have gone unemployed over the past 4 weeks will not even have jobs to go back to as not all businesses will be reopening. Businesses who do manage to stay afloat until the economy reopens will likely still suffer going forward as the consumer base that they need in order to generate profits will not be as strong as it was leading up to the current economic slowdown. This will more than likely lead to the closing of stores and laying off of staff in order to survive and prevent going out of business which means that we are looking at a prolonged period of high unemployment and slowdown in economic activity.
Overall, the current view on markets remains neutral even in the face of the Federal Reserve destroying true price discovery of "free" markets via trillions in bailouts, combined with the trillions in fiscal stimulus being provided by Congress. The bailouts and fiscal stimulus we've seen are a good bandaid and helping to prevent a complete freefall in markets and the economy in the short-term, but the underlying fundamentals continue to weaken the longer the economy remain shut down. We need to see 2nd and 3rd quarter company earnings before we will have a better idea of just how hard of a hit the economy is actually taking right now. Until then, it's all a guessing game and speculation as our leaders attempt to resolve this virus issue by just throwing money at it. We still don't know how long this virus will be around or how much more havoc it will wreak on not just the U.S. economy, but the global economy as a whole. We could be dealing with a global slowdown that lasts until a vaccine is created which may not be until mid-to-late 2021. That's an eternity in economic terms and means that we could be seeing trillions more in bailouts going forward thus preventing true, organic growth in markets while leaving the Federal Reserve as the main buyer and they are doing so with future tax receipts(our money).
Today's doji/indecision candle came on a day where the Federal Reserve attempted to front-run another bad unemployment data release as a way to prop up the U.S. economy by announcing a $2.3 trillion round of loans for small businesses and consumers, as well as states, cities and municipalities. They announced this loan program just before the unemployment numbers were released which indicates that they new of the numbers beforehand. The goal of the Fed with this latest round of bailout money appears to be an attempt to stem the tide of unemployment claims by incentivizing employers to take on loans(more debt) in order to keep employees on their payrolls. It also provides relief to states who have seen a record surge in unemployment claims which has put a big dent in state coffers.
Today's unemployment data release showed that 6.6 million people filed for unemployment last week and comes as the previous two weeks saw 6.8 million and 3.3 million bringing the total to nearly 17 million filing for unemployment in just the past three weeks. The previous weekly record for initial unemployment claims prior to this virus-induced economic slowdown was 695,000 back in 1982. Not even the 2000 or 2008 market crashes saw this drastic amount of people joining the ranks of the unemployed.
The data release today brings the official unemployment rate in the U.S. to just a little over 5% after starting the year at 3.6%, but the current rate doesn't reflect the true state of unemployment as not all those who have gone unemployed are eligible to receive unemployment benefits, nor are all of those who are eligible able to file due to the surge in filing causing state benefit sites to go down thus preventing everyone who is eligible from filing. The true unemployment rate as compiled by Shadow Stats is likely closer to 25%, or 1 in 4 Americans who are willing and able to work being unemployed.
Even the Federal Reserve's $2.3 trillion loan program announcement today was not enough to convince traders to jump back in to markets as traders are likely losing confidence in the Fed's ability to prevent what is coming in the months ahead for all of the businesses now generating $0 revenue combined with the millions who are out of work and falling behind on bills. It's doubtful that people are going to rush out and spend as indiscriminately or frivously as they were prior to the coronavirus which is what our consumer-based economy needs in order to grow and thrive. Americans are likely going to focus more on catching up on bills, paying down debt and/or saving in general as this virus and the lockdowns associated with it have likely given people plenty of reasons to start taking their rainy day funds a little more seriously, as well as the amount of debt that they are willing to take on in order to fund their lifestyles. There is also the reality that many of the people who have gone unemployed over the past 4 weeks will not even have jobs to go back to as not all businesses will be reopening. Businesses who do manage to stay afloat until the economy reopens will likely still suffer going forward as the consumer base that they need in order to generate profits will not be as strong as it was leading up to the current economic slowdown. This will more than likely lead to the closing of stores and laying off of staff in order to survive and prevent going out of business which means that we are looking at a prolonged period of high unemployment and slowdown in economic activity.
Overall, the current view on markets remains neutral even in the face of the Federal Reserve destroying true price discovery of "free" markets via trillions in bailouts, combined with the trillions in fiscal stimulus being provided by Congress. The bailouts and fiscal stimulus we've seen are a good bandaid and helping to prevent a complete freefall in markets and the economy in the short-term, but the underlying fundamentals continue to weaken the longer the economy remain shut down. We need to see 2nd and 3rd quarter company earnings before we will have a better idea of just how hard of a hit the economy is actually taking right now. Until then, it's all a guessing game and speculation as our leaders attempt to resolve this virus issue by just throwing money at it. We still don't know how long this virus will be around or how much more havoc it will wreak on not just the U.S. economy, but the global economy as a whole. We could be dealing with a global slowdown that lasts until a vaccine is created which may not be until mid-to-late 2021. That's an eternity in economic terms and means that we could be seeing trillions more in bailouts going forward thus preventing true, organic growth in markets while leaving the Federal Reserve as the main buyer and they are doing so with future tax receipts(our money).