The Dow Jones Industrial Average is falling again for the third straight trading session. With the downtrends we've seen on the index recently, many are starting to ask if it's time to start betting against the Dow again. In my opinion, the answer is YES!!! Today, we'll talk about why the Dow Jones is declining, why the index is likely to continue heading in the wrong direction and how binary options traders can make money off of the trends.
Why The Dow Jones Is Declining
The Dow had a rough time earlier in the year as the result of Chinese market concerns. However, the decline we're seeing in the market at the moment is American made. The story all revolves around the Federal Reserve. Essentially, in the midst of the economic crisis of 2008 and 2009, the Federal Reserve reduced its interest rate, hoping to stimulate economic conditions in the US. This plan has worked, however, we all knew that it wasn't going to last forever.
Because economic conditions were improving, the Federal Reserve announced in late 2014 that it planned on increasing its interest rate in 2015. Unfortunately, economic conditions in the United States throughout the United States simply didn't justify an interest rate hike earlier in the year. Now, economic conditions are improving and it's expected that the Federal Reserve will increase its interest rate following the December 15th and 16th FOMC meeting.
Why The Federal Reserve Interest Rate Is Weighing Heavy On The Dow
There are two reasons that the coming increase in the Federal Reserve rate is weighing heavy on the Dow Jones Industrial Average…
Corporate Profits – First and foremost, when the Federal Reserve increases its interest rate, consumers will have to spend more money on interest. This leaves less money available for spending elsewhere. Ultimately, when consumer spending declines, corporate profits decline, and that's not something investors want to see.
Oil – It's also important to mention that the energy sector weighs heavy on the Dow Jones Industrial Average. As if the energy sector wasn't struggling enough as it is, things are going to get worse when the Fed increases its interest rate. That's because the value of oil is priced using the USD. When the Fed increases its interest rate, demand for the USD will grow, leading to a stronger dollar. As a result, oil will become more expensive in other economic regions, leading to declining demand and exacerbating the current supply glut issue. This will cause declines in oil, putting more pressure on the energy sector.
What We Can Expect To See Moving Forward
Moving forward, we're likely to see more declines in the Dow Jones Industrial Average. The reality is that the coming Fed rate hike is going to weigh heavy on the index. While there will be good days in the mix, we're likely to see more bad days than good.
How Binary Options Traders Can Take Advantage Of The Trends
As a binary options trader, it's your job to determine which direction assets are headed. The good news, is that we have a good idea of what's to come. With the Dow Jones headed for more declines, binary options traders should take advantage of the trends by watching for put option opportunities. It's also important to remember that the Dow isn't the only asset that's going to be affected. We're going to see big changes in oil, gold, the S&P 500 and several other assets. So, consider how the Fed is likely to affect other assets moving forward and work to take advantage of the trends in all areas. Read more financial news by TheBinaryAdvisor.
[Image Courtesy of CNBC]