UBS : The Looming Crash of The DOW
(Mon, 18 May 2020). The Dow Jones Industrial Average declined 2.7% last week. The benchmark index is down nearly 1,000 points from it April 29 closing high. UBS’ Art Cashin sees an “absolutely critical” test for the Dow at the 22,900 support level. The Dow and broader U.S. stock market are coming off a volatile week, as dismal economic data and a stern warning from a top Federal Reserve official weighed on investor sentiment. Now, one of Wall Street’s most knowledgable insiders is cautioning of a steeper selloff for the Dow as it approaches a key support level.
Art Cashin: Bulls Are On The Defensive
Art Cashin, UBS’ director of floor operations, took to CNBC on Friday to warn of a potentially longer-term selloff for the Dow. In an interview on “Squawk Alley,” Cashin said the market is in a “testing period” and that the “bulls are clearly on the defensive.”
Cashin says the 22,900 support level is “absolutely critical” for the Dow. If the blue-chip index falls below that level, investors should brace for a longer-term downtrend.
The Dow on Friday closed at 23,685.42, which is 3.3% higher than the vital level identified by Cashin. The index is down roughly 1,000 points, or 3.9%, from its April 29 high. While Cashin did not identify how far the Dow could fall, the March 23 low of 18,591.93 is one of the more obvious targets for a retracement.
No Support From Trump
The coronavirus pandemic dealt President Trump’s ability to talk up the stock market a significant blow. By zeroing in on China–for its manipulative trade practices and for failing to alert the world about the dangers of Covid-19–Wall Street is no longer Trump’s top priority heading into the election.
Art Cashin echoes that view and thinks investors are already bracing for a new round of “anti-China” rhetoric. “Traders are concerned not just about Huawei,” Cashin said in reference to the U.S. restricting semiconductor sales to the Chinese telecom giant.
They think that there’s a chance that the President’s team may adopt an anti-China and China’s handling of the virus as part of the theme going into the election. And that will make for further trading bumps, and that will keep the bulls on the defensive for weeks if not months at a time.
Analysts say the resumption of a U.S.-China trade war is the most considerable risk to the stock market. For Trump, holding China’s feet to the fire may be necessary to get voters in swing states on board with his reelection.
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