Dow, Nasdaq and DAX plummet this morning despite Fed rate cut

US central bank cuts rates to 0-0.25% and introduces QE, futures hit limit down.

Dow Technical analysis, overview, strategies, and levels

While it might have been a strong Friday finish for the Dow, looking at the week overall and this morning’s limit down and it was a brutal one with an easy break beneath last week’s Weekly Support levels for a finish that aided conformist breakout strategies and in line with its current volatile technical overview. The US Federal Reserve’s (Fed) $1.5tn injection last week into the financial markets was meant to ease the liquidity crisis, and with its rate now at 0-0.25% combined with $700bn of QE it has been attempting to reinforce that stance.

IG client* and CoT sentiment for Dow

In sentiment, retail bias has shifted back to majority short, while CoT (Commitment of Traders) speculator long bias has risen 6% to a heavy long 76% with a larger reduction in shorts (by 1,751 lots) than longs (by 964 lots).

Dow chart with retail and institutional sentiment

Nasdaq Technical analysis, overview, strategies, and levels

The Nasdaq didn’t suffer as badly as the Dow last week, but no doubt the price moves lower past its 50-week and (briefly past its) 100-week moving average was no doubt noted, and within its current volatile technical overview whereby volatility has failed to subside in equities given the difficulty of pricing the unknown, and the uncertainties that persist in the current worsening environment. Technicals mean less in the current coronavirus storm, and should pricing remain difficult and conformist volatility strategies are likelier to outperform. In terms of its components, Friday’s surge put Intel at the top as an outperformer, but there were a few in the red including Tesla.

IG client* and CoT sentiment for Nasdaq

In sentiment, retail bias has also shifted here to majority short, while CoT long bias has dropped 6% thanks to an increase in shorts by 2,350 lots and a simultaneous reduction in longs by 558 lots.

Nasdaq chart with retail and institutional sentiment

DAX Technical analysis, overview, strategies, and levels

While there were quite a few in the red on Friday including Volkswagen ahead of its earnings release this week, most of its components were in the green and led by airliner Lufthansa, as the German government pledging fiscal stimulus was seen as a boon at a time when Europe becomes the epicenter of the coronavirus, and where Eurozone countries (including Germany this morning) announcing new restrictions. Government 10-year bond yields in negative territory has usually been positive for the German DAX as investors seeking returns are forced into riskier assets, but if some are shifting to wealth preservation instead and that means the lack of increased stimulus out of the ECB (European Central Bank) will do little to entice buying the index.

IG client* and CoT sentiment for DAX

In sentiment, retail long bias has dropped since the start of last week but remains in majority long territory.

DAX chart with retail and institutional sentiment

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am.

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European Central Bank meeting

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