PrimeXBT Research: Why The Dow Jones Reorganization Could Precede Major Turbulence

Technology News

The stock market has done the unthinkable, not only rebounding from Black Thursday with a V-shaped reversal, but most of the major US stock indices broke records and set a new all-time high.

The Nasdaq 100 index was the first to break its previous high and set a new record. The S&P 500 this week followed suit and set a new record. The Dow Jones Industrial Average, the third largest US stock index, is yet to break its previous high.

To give the Dow Jones a needed boost and potentially put it back on par with the S&P 500 and the Nasdaq, the companies included in the index have seen an upward shift. The restructuring was triggered by a split in Apple’s shares , but it has also caused the Dow to lean more toward technology.

The oil giant Exxon Mobil, the pharmaceutical firm Pfizer and the defense company Raytheon will be delisting on the Dow Jones and have given space to Salesforce, the technology maker Honeywell and the biopharmaceutical brand Amgen.

But will the company’s new quotes after ditching the old for the new help the Dow set a new record and prevent a deeper collapse? Unfortunately, it may be too late, according to a major volatility indicator that has previously signaled major market turbulence.

 

The Dow lagging other major US stock indices, but what does a new lower high mean?
The Dow Jones Industrial Average is often considered a barometer of the strength of the US economy, alongside the S&P 500 and the Nasdaq. These three main stock indices are the ones that appear in newspaper headlines and appear at the bottom of the screen during primetime news segments.

All eyes have been on the bag, even more so since Black Thursday. The pandemic sparked a panic-induced selloff of epic proportions , causing most of the major stock indices to collapse by more than 35% from high to low.

Given the severity of the downturn and the current situation, leading economists laughed at the idea of ​​a V-shaped recovery . But the Federal Reserve’s stimulus efforts have given the stock market a chance. At least it has for the S&P 500 and the Nasdaq. The Dow, however, has lagged behind and failed to set a new record.

With the pandemic still going on, the lack of a new high wouldn’t be alarming if it weren’t for other indices doing it. A lower high on the Dow puts the stock index at risk of setting a lower low. The combination of a lower high and a lower low is the literal definition of a downtrend.

If the Dow does not set a new high, if it does establish a new low, a downtrend and bear market for stocks becomes a possibility.

Business reorganization on the Dow Jones Industrial Average includes Salesforce, Amgen and Honeywell
Whether it’s a sign that times are changing or a much-needed attempt to revitalize the Dow Jones Industrial Average, three companies are being ditched in favor of three new and more promising brands. The change is just one of 56 times this has happened since its inception on May 26, 1896.

Exxon Mobil, Pfizer and Raytheon are out and Honeywell, Amgen and Salesforce are in. Oil is no longer in demand as it used to, thanks to the pandemic. Big Pharma is out and biopharmaceutical is the future . Cloud technology and sales keep company revenues in constant motion.

These brands and their industries represent the place where future growth is expected, while the exit brands are fossils of the financial world. The only problem is that the shakeup may be too small, too late, to save the Dow Jones from looming volatility, nor can it help the Dow catch up with the S&P 500 or the Nasdaq.

Techs Point to Dangers of Dow Jones Pullback and Deeper Fall Possible
The lower high is not the only technical indicator pointing to a further decline in the Dow Jones. There is currently a substantial bearish divergence in the Relative Strength Index dating back to June, when the Nasdaq first set a new high, just as it pressed against resistance.

The bullish momentum in stocks sent the market accelerating, but unlike the Nasdaq, the Dow had a lot more to go before setting a new record. The Dow is still 1,000 points behind its previous high. The bearish divergence suggests that it will not arrive in time to avoid an explosive move, probably to the downside given the technical analysis.

Incoming volatility: CBOE VDX signals impending storm in the stock market
The Relative Strength Index is not the only red flag to be raised in the stock market. According to leading economists, comparing volatility indices with stock indices can help you discover highs and lows.

The VIX , a volatility index that measures the expected volatility of the S&P 500, was used to predict the 2007 high before the Great Recession and the stock market crash. The VDX, the counterpart to the VIX that measures the Dow rather than the S&P 500, may also be signaling that there is another top and a significant storm brewing in the stock market.

The VDX is breaking through a downtrend line, going back to the peak before the Black Thursday crash. Volatility had not been higher since the recession and has remained above a critical level throughout the V-shaped recovery.

A VDX greater than 20 almost always results in extreme volatility. Although things have cooled off a bit in the stock market since the March crash, the VDX never fell below 20. Readings of more than 20 going back to the index have always resulted in significant market turbulence. of values.

Turn turbulence from panic to opportunity with PrimeXBT
Market turmoil and crashes don’t always have to be a bad thing. Investors who were neck deep in stocks before the Black Thursday crash saw their paper earnings evaporate before their eyes. Many panicked at the bottom, only to see a rally back to previous highs.

Right now, when FoMO is making a comeback, the carpet could be thrown and the stock bubble burst. The RSI indicator shows that the strength of the buyers is waning and is weaker than in the past, which could indicate that a reversal of the highs is approaching. Coinciding with the VDX, which hints at significant market volatility going forward, investors could suffer another disaster.

However, PrimeXBT traders can benefit in whatever way the market turns with long and short Contract for Difference (CFD) positions for major stock indices such as the Dow, S&P 500, Nasdaq, and various others. The award-winning Bitcoin-based leveraged trading platform offers a wide range of global stock indices alongside commodities, gold, silver, forex, and cryptocurrencies such as Bitcoin and Ethereum.

Traders can also hedge against the stock market with gold or Bitcoin and build a diverse portfolio of correlated and anti-correlated assets. The platform also recently launched a new copy-trading module called Covesting, which allows inexperienced traders to copy expert strategy managers and profit from their trades. Rather than invest and stay even at a loss, PrimeXBT offers several other profitable solutions under one roof.

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