Earlier, we have discussed the actual U.S economic situation, and mentioned its major problems; negative growth, low inflation, and high unemployment rate.
As starting a new quarter, investors’ anticipations would be more optimistic.
The leading economic indicators and surveys anticipate that Q2-2020 would be the worst quarter in this crisis, and the third quarter will show better results, starting a new phase of recovery.
Both consumer and business sentiment surveys have marked a bottoming through April and May, and strong increases by June.
Looking at the charts above, we remark historical positive correlation between ISM PMI & UMCS, and GDP Growth, and that they reflect high degree of Growth predictability.
This indicates that it is highly expected to see a third quarter better than the previous one.
The Dow Jones is a good opportunity to buy.
With the optimism reflected through leading indicators, and by taking a look at the chart below, we observe the same correlation with the DOW jones industrial average which opens the Door for a great buying opportunity.
The Djia volatility index VXD is continuing its down trend signaling decreasing risk and volatility in the markets. But at the actual volatility level at around 29, the Dow Jones still carries a potential move of about 8% for the next 30 days and a potential move of 14.5% during the third quarter.
Asset allocation measures:
Historically speaking, during past quarters with the same criteria of positive growth and inflation rate of change, on a year over year basis, compared to previous quarter, we observe that 74% of times for data back to 1972 the Dow Jones industrial average has made positive returns with an average of 5.22% returns.
Futures Commitment of traders, CFTC COT REPORT
Looking at the futures market, non-commercial money managers have recently turned to the buying territory as shown in the chart below, where we have calculated the long and short percent change in open interest spread.
The move was very sharp to the upside, telling us that the third quarter is going to bring greater returns.
The index has recently made a double bottom at around 25000.00 and is now trading above both moving averages of 21 and 60 days (short, and midterm periods).