Although we predicted the exuberant rally of yesterday, we also said it won't last. We predict that the Fed is likely to admit to the requirements, but will resist, because it knows that the action would not be effective.
Despite this, the futures of the Fed fund already price half a percent reduction in March. In addition, US President Donald Trump had resumed pressure on the Fed, encouraged by the decision of the Australian central bank to reduce by a quarter percent.
But why would a Fed rate cut be ineffective? First, it is already expected. So, the Fed should really impress the market to wake up its animal mind again – and it doesn't have that much room to maneuver.
Secondly, and more to the point, the issue at stake is the coronavirus outbreak – and the world is no closer to its management, let alone eradicating it. Growth is expected to be the worst since the financial crisis, as production lines and supply chains are being stirred up.
Finally, we could see a return to a trade war between the US and China if China does not keep its promises about the Phase One deal.
Also, from a technical point of view, the fortunes of the Dow don't look good.
On the one hand, the MACD and the RSI are extremely over-sold, with the latter reaching the lowest level since August 2015, while the price supported the 25,000 support, both from the low of 31 May and the uptrend line. since January 2009.
On the other hand, bulls have to climb a serrated mountain after the price reduction by the upward line since the December 2018 flirt with a bear market, & # 39; protected & # 39; by the 200 DMA.
Trading Strategies
Conservative traders would wait for a new record and then for a downward correction of the upward trend before they risked investing in this market.
Moderate traders can risk a long position after signs of accumulation above the interrupted upward trend.
Aggressive traders would be close to the first sign of resistance, or above an assumed resistance, with a stop-loss calculated to provide a positive risk-return ratio that fits their budget.
Trade sample – short position
Input: 27,300 (above 200 DMA)
Stop loss: 27,400
Risk: 100 points
Target: 25,300
Reward: 2,000 points
Risk: reward ratio: 1: 20
