- Dow Jones index drops for fourth session this week, on track to post nearly 4.5% reversal from late March highs near 40,000.
- JPMorgan leads losses as quarterly earnings failed to meet expectations.
- News that China has told tech firms to phase out foreign chips hammers chipmakers.
The Dow Jones Industrial Average (DJIA) is reversing Thursday’s gains on a negative session opening on Friday. The quarterly earnings of some of the largest US banks have failed to cheer investors, who are already feeling frail sentiment on lower hopes of monetary easing by the Federal Reserve (Fed).
JPMorgan (JPM) and Wells Fargo (WFC) have posted softer-than-expected results in the first quarter, which is weighing on the financial sector. Beyond that, mega-caps and chipmakers are suffering on the back of news reporting that China has told telecom firms to phase out foreign chips.
The NASDAQ is leading losses on Friday, down 1.85% to 16,140, the S&P 500 drops 1.65% to 5,113, and the Dow Jones trades with a 1.4% loss at 37,895 on early afternoon trading.
Dow Jones news
All the Wall Street sectors are posting losses on Friday. The Materials sector posts a 2.03% decline, the weakest performance, followed by the Consumer Discretionary, 1.91% lower. The Consumer Staples and the Energy sectors are the least affected by the risk -averse sentiment, down q.q2% and 1.65% respectively.
JP Morgan is taking the biggest blow on Friday with a 6.12% decline to $183.43 following disappointing quarterly data, while Intel (INTC), which has been crushed by news about China’s decision, is 4.8% lower to $35.83. On the positive side, Walmart (WMT) advances 0.28% to $60.26, next is Apple (AAPL), up 0.24% to $175.46.
Dow Jones technical outlook
The Dow Jones index keeps drifting away from the historic highs reached in March. The move below 38,560 has activated a bearish Head & Shoulders pattern that might anticipate a sharper decline.
The next bearish targets are 38,000 and 37,750. The measured target of the H&S pattern is the mid-January low and 38.6% Fibonacci retracement at 37,087. A bullish reaction above 38,540 might find some more supply ahead of 39,000 (order block).
Dow Jones Index Daily 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.