The Dow Jones Industrial Average has had an incredibly rough start to the year 2016. In fact, since the first day of trading in the new year, we've seen overall losses on the index. However, over the past few trading sessions, the Dow has done incredibly well. Does this mean that we're heading back to the bull market. Today, we'll talk about why the Dow struggled throughout the beginning of the year, why we're starting to see gains, whether or not we can expect for gains to continue and how binary options traders can trade the trends. So, let's get right to it…
Why The Dow Jones Industrial Average Had Such A Rough Start To The Year
As mentioned above, the Dow Jones Industrial Average has had a horrible 2016 thus far. However, the Dow isn't alone. The reality is that the vast majority of blue chip indices around the world have struggled throughout the year. So, what caused the declines? Well, there are a few factors here…
Oil – First off, oil is incredibly important to the market. After all, price movements in oil dictate price movements in the energy sector as a whole. However, for more than a year now, oil has been in the midst of a crisis. A global supply glut has pushed the price of oil down, and this has put resistance on the energy sector as a whole.
Global Economic Conditions – Another factor that plays a major role in market conditions is the global economy. After all, when the global economy isn't doing well, publicly traded companies generally aren't making as much money, leading to declines. Unfortunately, the global economy has been struggling, leading to declines in the market.
China – Finally, we get to the straw that broke the camel's back. On the first day of trading in the new year, the Chinese market crashed in a big way. Because China is the world's second largest economy, this created a domino effect, leading to declines in markets around the globe.
What's Causing Recent Bullish Activity?
The recent bullish activity that we've seen from the Dow Jones Industrial Average has largely been caused by statement made by Mario Draghi, the President of the ECB. Recently, Draghi made comments insinuating that the ECB is ready to stimulate the European economy further. Here's what he had to say…
“First we will examine the strength of the pass through of low imported inflation to domestic wage and price formation and to inflation expectations… Second, in the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks… If either of these two factors entail downward risk to price stability, we will not hesitate to act.”
So essentially, traders are expecting to see positive movement in the European economy, and that is supporting price growth.
What We Can Expect To See Moving Forward
Moving forward, I have a relatively mixed opinion of what we can expect to see. In the short term, I'm expecting that the Dow Jones will continue climbing as a result of investor excitement with regard to Draghi's comments. However, in the long term, it's important to pay attention to other factors like oil, global economic stability, and more. These factors point to bearish long term movement.
How Binary Options Traders Can Take Advantage Of The Trends
To take advantage of the trends, binary options traders should be looking for call options on the down in the short term in order to ride the uptrends fueled by investor excitement up to the profits. However, it's also important to watch for a reversal as put options are likely to soon be in order!
What Do You Think?
Where do you think the Dow is headed and why? Let us know your opinion in the comments below.
[Image Courtesy of Wikipedia]