Dow Futures Fade Because This Rally Has a Fake Fuming Bull

  • Dow Jones Industrial Average (DJIA) futures slipped 0.2% on Tuesday.
  • Investors initially cheered strong factory data out of China but the rally soon faded.
  • There is little else to fuel the bullish rally as the coronavirus slowly cripples the US economy.

The stock market looks set to dip lower after Monday’s glorious relief rally. Dow Jones Industrial Average (DJIA) futures were down 0.2% in the premarket session.

The Dow has jumped 20% from last week’s bottom, but analysts warn this is a classic dead cat bounce. ‘There’s no faith in this rally,’ said Credit Suisse strategist Mandy Xu. She thinks traders are simply using this opportunity to reposition themselves.

Investor sentiment remains extremely cautious. In the options market, investors have taken advantage of the bounce by resetting hedges, rather than adding to longs.

Despite promising factory data out of China, there is nothing bullish about the economic backdrop right now. A possible 32% of Americans face unemployment as the virus continues to ravage U.S. cities. The stock market’s biggest buy pressure has vanished, volatility is still near record highs, and oil hovers at 20 year lows.

Dow futures lower despite strong China data

Dow futures contracts initially jumped 1% on news that China’s factories returned to growth in March. But the rally faded quickly with DJIA futures currently down 43 points or 0.19%.

Dow Jones Industrial Average (DJIA) futures pushed higher in early trading Tuesday. Source: Yahoo Finance

S&P 500 futures and Nasdaq Composite futures were up 0.72% and 1.13% respectively.

The stock market’s biggest buyer has vanished

The biggest buyers of shares are… the companies themselves. Companies bought more than $2 trillion of their own stock over the last three years, making them the biggest buyer on the market.

That buying demand has vanished. Goldman Sachs explains:

Buyback activity will slow dramatically, both for political and practical reasons. First, politicians are…

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