The Dow Jones Industrial Average has had a rough time over the past several trading sessions, bringing the index down off of highs realized in the most recent push upward. The big question now is, “Will the declines on the Dow continue?” In my opinion, the answer is yes. Today, we'll talk about why.
Why I Believe That The Dow Is Likely To Keep Falling
When it comes to the Dow Jones Industrial Average, I'm expecting to see declines last for some time. While there is no single reason for my bearish opinion of what we can expect to see, there are a few reasons that, when combined, make one heck of a case for declines. Here they are…
Oil – First and foremost, it's important to understand that the price of oil and the down have an incredibly strong positive correlation. This means that when the value of oil falls, chances are that the Dow will follow. The reason for this is simple. The Dow Jones Industrial Average is an index that lists industrial stocks. This means that the energy sector is a big one for the Dow. When the value of oil is down, the energy sector doesn't generate quite as much by way of revenue, earnings, or any other measurement. As a result, these stocks tend to decline. Because the Dow Jones has several of these stocks, declines in the energy sector generally mean declines in the Dow overall. With that said, oil isn't looking too great at the moment. In fact, recent data was released that shows that the supply glut is getting worse, and prices are likely to continue declining.
Market Valuations – Another reason I have a relatively bearish opinion of what we can expect to see from the Dow has to do with market valuations. Before the massive declines we saw in the market in January, market valuations were a major concern. Here we are again, just months later with prices trading on a nearly parallel price. Ultimately, high market valuations are going to lead to resistance, and likely help to push prices back down.
Economic Conditions – The market is heavily dependent on the global economy, and the truth is that the global economy still isn't doing well. For some time now, we've seen struggles in the eurozone. On top of that China recently surprised the world by devaluing the Yuan yet again, and Japan isn't doing so well either. All in all, the world's largest economies are lagging to say the least, and that's creating quite a bit of resistance in the market as well.
How Binary Options Traders Can Take Advantage Of The Trends
As binary options traders, our job is relatively simple. The ultimate goal is to predict trends surrounding financial assets and exploit those trends for a profit. When it comes to the Dow Jones Industrial Average, generating profits should be relatively simple. Currently, as the value of oil falls, the Dow Jones Industrial Average is feeling the pain, thanks to its dependence on the energy sector. On top of this, poor economic conditions and high market valuations are setting up the stage for a perfect storm leading to further declines.
In order to take advantage of the declines that are likely coming, binary options should be watching the Dow closely for strong put option opportunities. This will allow the trader to follow the downward trends down to the profits!
What Do You Think?
Where do you think the Dow Jones Industrial Average is headed and why? Let us know your opinion in the comments below!