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Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

Margaret Yang, CFA, Strategist

DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • Dow Jones had its worst day in more than a month amid virus, election and stimulus concerns
  • US corporate earnings continued to beat forecasts, but failed to lift market confidence
  • Nikkei 225 and ASX 200 index may lead Asia-Pacific market lower. Ant Financial IPO in focus
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Dow Jones Index Outlook:

The Dow Jones Industrial Average (DJIA) index fell 2.29% on Monday, marking its worst trading day since 21st September. A worrying virus resurgence across the US and Europe and a pending US relief package are among the top weighing factors. US corporate earnings continued to fare well, but investors are perhaps looking beyond the current season and assessing a potentially slower pace of growth in the winter.

The US has registered 59,691 new coronavirus cases on October 25th, marking a decline for the second day after hitting a record on 23rd. Yet there appears to be lack of incentive from the government to impose lockdown measures before the US election, rendering risk assets vulnerable to further pullback should coronavirus cases continue to climb.

Map of cases (last 14 days)

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

Source: Google

Asia-Pacific stocks look set to trade broadly lower on Tuesday. They may, however, demonstrate resilience against external headwinds. Virus situations are better managed across the Asia-Pacific region, with China remaining a key growth engine. Some 137 new confirmed Covid-19 cases were reported in Xinjiang province on Friday, resulting in a rapid response to test 3 million people in the area.

Chinese fintech giant Ant Financial, possibly the world’s largest IPO ever, has been priced at HK$ 80 per share. Ant will be listed in both Shanghai and Hong Kong on November 5th, shortly after the US election.

On the macro front, Chinese industrial profits and US durable goods orders and consumer confidence are among the top events. Find out more on our economic calendar.

Sector-wise, all 9 Dow Jones sectors closed in the red, with 96.7% of the index’s constituents ending lower on Monday. Industrials (-3.07%), materials (-2.84%) and financials (-2.80%) were among the hardest hit, whereas defensive-linked consumer staples (-1.15%) and healthcare (-1.54%) were performing slightly better.

Dow Jones Index Sector Performance 26-10-2020

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

S&P 500 Index Q3 Earnings Update – October 26th 2020

Name

Date

Period

Actual

Estimate

Surprise

Otis Worldwide Corp

26/10/2020

Q3 20

0.69

0.554

24.50

Hasbro Inc

26/10/2020

Q3 20

1.88

1.596

17.80

HCA Healthcare Inc

26/10/2020

Q3 20

1.92

2.283

(16.10)

Cincinnati Financial Corp

26/10/2020

Q3 20

0.39

0.39

0.00

F5 Networks Inc

26/10/2020

Q4 20

2.43

2.376

2.30

Alexandria Real Estate Equitie

26/10/2020

Q3 20

1.83

1.831

(0.10)

Principal Financial Group

26/10/2020

Q3 20

0.85

1.399

(39.20)

Packaging Corp of America

26/10/2020

Q3 20

1.57

1.424

10.30

National Oilwell Varco Inc

26/10/2020

Q3 20

(0.02)

(0.117)

86.60

Technically, the Dow Jones index has decisively broken down the 50-Day Simple Moving Average line at 28,040 (chart below). Breaking this immediate level may have opened the room for more downside towards the next support levels at 27,755 (the 50% Fibonacci retracement) and then 27,470 (the 61.8% Fibonacci retracement) respectively.

The MACD indicator formed a “Death Cross” last week and prices have been trending lower since. This suggests that bearish momentum is dominating for now. The index price has also pierced through its lower Bollinger Band, signaling strong downward momentum.

Dow Jones IndexDaily Chart

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

Nikkei 225 Index Outlook:

Technically, the Nikkei 225 index has likely formed a “Rising Wedge” on its daily chart, with the 20-, 50- and 100-Day SMA lines all trending up steadily over the past few months. The Nikkei may risk a temporary pullback against the backdrop of external headwinds, potentially breaking the “Rising Wedge” lower if selloff pressure in the US market persists. An immediate resistance level can be found at 24,000 – the previous high seen in mid-February 2020. The 50-Day SMA can be perceived as an immediate support level.

Nikkei 225 Index Daily Chart

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

ASX 200 Index Outlook:

Technically, Australia’s ASX 200 stock benchmark hit a major resistance level at 6,200 and has retraced since then. The near-term trend appears to be bearish-biased, with the MACD forming a “Dead Cross” recently. Immediate support levels can be found at the 6,000- 6,020 area, where the 50-Day and 100-Day SMA lie.

ASX 200 Index Daily Chart

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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