DJIA Futures play a distinctive role in the markets.
The DJIA Futures is the abbreviated version of Dow Jones Futures.
DJIA is the symbol with which this Future trades on the exchanges.
On an average, most market men consider it as one of the most definitive market indicators.
Often beginners in the market may be confused about the role played by the Dow Futures.
They are unable to comprehend why the Dow Futures signal the market pace in such a significant manner.
That alone will help them in understanding the role it plays.
This is one of the most important indicators for the market.
The question is then why does it play such a pivotal role.
Most importantly, there are fundamental concerns like is it different from the main Dow Index?
So that goes on to establish the need for understanding the basics of DJIA Futures.
Moreover, a better understanding of the core component also helps you identify the triggers.
So let us first get a detailed understanding what comprises the DJIA Futures and how you can trade it?
Knowing What Is DJIA Futures
In simple terms, these refer to future contracts of the Dow Jones.
A futures contract is generally a legal agreement between two parties.
It can be between two individuals or even an institution.
They agree on a certain payment arrangement on a specific asset class based on price movement.
They are legally bound to transfer the asset or the money as per the terms of the contract.
So it is like going to a shop and buying a dress.
Both the parties strike a deal.
Let us say they expect the Dow to hit a certain level by a certain date.
Now X agrees to pay Y the difference between the actual closing price and the expected rate on this specific date.
But in this context, the futures are slightly different from Options.
In case of Options, the holder has the right but not the obligation to exercise it.
But a Futures contract has to be exercised on the appropriate date of settlement.
These DJIA Futures trade on the exchanges.
So indirectly the exchange becomes the counter party for the position taken.
That undeniably adds a certain degree of reliability and credibility to the whole deal.
Trade on these counters starts about an hour before markets open.
They become a crucial element of the pre-market trade.
As a result, they become a major indicator of the overall market sentiment.
They signal the broad market trend and shape the sentiment largely.
So it is extremely relevant to analyze if the DJIA Futures are set to go up or not.
The broad consensus is if they shoot up, it will keep the market buoyant.
For example, if a company declares earnings and the DJIA Futures shoot up, there is a good chance the broader markets will rise too.
Why Is It Important to Know If the DJIA Futures Will Move Up?
We have seen a dream run in the markets through 2017.
Though the first half of 2018 saw a bit dampening of the euphoric element, the markets are on the rise.
Many experts say that the markets are on the last leg of the recent 9-year bull run.
Now that is an ominous aspect to consider.
Many investors are still recovering from the scathing impact of the last market crash.
The current Bull Run stands on the solid foundation of economic revival and earnings growth.
But the fear factor in the market is almost like the Oxygen we breathe.
You cannot do without it.
Often, it is the fear that acts as a moderating element in the market.
It brings down speculative positions and creates a ground for long-lasting fundamental trades.
But all of these is in the realms of imagination and expectation.
The only element that can provide any real-time insight is the DJIA Futures.
There is a two-pronged advantage in following the Futures contract.
On the one hand, these are Futures contracts.
The prices of a subsequent month contract can offer some clues about the future trend.
Moreover, the DJIA Futures indicate the Index movement and trends.
It goes without saying that the Index will always precede the markets in terms of any movement.
So just following the Dow Futures can often provide investors with key inputs about the future trends.
This is a particularly important element to consider for long-term as well as short-term investments.
As a result, the DJIA Futures offer important clues about the market.
It is, therefore, necessary to track its movement very closely.
DJIA Futures Outlook till 2020
One of the biggest determinants of Future price trend is the rate at which the forward month contracts are trading.
They offer a realistic view of the extent of price movement that you may see going forward.
In many ways, this is also an indicator of the sentiment and the market discretion.
Most forecasts peg that the DJIA Futures may end 2018 closer to 26000 levels.
That would mean that there is going to be at least 8% price appreciation from current levels.
But that is not all.
Most indicators and analyst reports present a favorable picture for the next two years at least.
While it may be true that we are in the last leg of the current bull run, but this bull run is not getting over in a hurry.
Even the most conservative estimates project a 35% gain by the end of 2020.
Forecasts indicate that the DJIA Futures is well on track to cross the 30,000 mark by the end of 2020 May.
That, in very simple terms, indicates just one thing, the DJIA is set to go up going forward.
While incrementally, the month on month change may not be huge.
But the fact is that the Index is well on its way up.
A close study of the projected forward month contract prices indicates that the change is gradual.
It does not have the heady speculative euphoria of 2017.
But between 2018-2020, there is a decided uptrend.
Perhaps the slow and steady pace of the uptrend is the most heartening part of the upmove.
There is no crazy race to 30,000.
On the contrary, the DJIA Futures indicate that the markets are set to climb in a gradual fashion.
That means there might be some consolidation too on the way.
When you are analyzing the Future price movement, technical indicators do play an important role.
You may say that Technical indicators are presumptions based on chart patterns.
But for that matter, the entire forecast game is about assumptions.
Whether you assume an economic development or a price barrier, none of us really have the crystal ball.
All forecasts are based on certain assumptions and price patterns.
In this context, the technical indicators do have a crucial role.
Whether you are looking at the support levels or the resistance zones, it gives you a sneak peek at the key levels to watch out for.
The 25000 level in this context is a very crucial one.
It is a psychologically important level for the markets.
What is particularly interesting is that it has seen some pullback at that level.
This is an indicator that there is no mindless rush to breach the level.
The market is taking its time and devoting sufficient attention before finalizing a pronounced breach.
As US and Chinese trade worries are ebbing, the timing also seems to be appropriate.
We must not forget that the 25000 level is also a structurally important point.
It is that one level that all types of charts are converging at and pointing towards a decided upmove.
It is a point where both the analysis and the moving averages are on the same page.
All the key moving averages along with the technical indicators imply a distinct room for growth.
They align at a definitive level and indicate a clear opportunity to rise further.
The 25001.80 is the pivot point.
A clear uptrend is in the offing as the markets have managed to cross this point with conviction.
It, therefore, implies that the DJIA Future is set to go up further.
Market Sentiment a Strong Buy
When you are analyzing whether the DJIA Futures will go up, the analyst call is a crucial factor.
It does not just give you a fundamental call on the counter.
The analyst calls are most times supported by a series of anecdotal and circumstantial evidence.
This is why an average investor like us rely so heavily on the analyst call.
If you undertake a quick search on the overall outlook for DJIA Futures, you will realize it is a Strong Buy across geographies.
This unanimous call for growth is in itself is a big indicator in itself.
It tells you that most serious market participants are convinced about a definitive upmove.
The target levels may differ from analyst to analyst, but the uptrend is a decided given.
The US-China trade talks is one of the most important catalysts for this uptrend.
Most analysts say that these talks settling down may provide the next growth trigger.
Moreover, it is very important to understand that any sustained uptrend will have to be supported by strong growth signals.
China and US together command a sizeable chunk of the world economy, trade and markets.
Significant progress in trade between the two countries can only reinstate future growth catalysts.
High tariff on the automobile has been one of the most significant US complaints.
This may well be on the road to reconciliation in times to come.
China has announced it will cut import tariff on automobiles and select car parts too starting from July 1.
The expectation is that the tariff will be lowered to 15% from current 20-25%.
Tariff on automobile parts may also be cut to 6%.
This is what is set to trigger growth in individual companies.
That is what is likely to sustain the DJIA Futures’ uptrend.
Earnings Outlook till 2020
Now, what is the growth outlook based upon?
When you are analyzing the DJIA Future’s uptrend and the growth that is supporting it, this is an important consideration.
The overall growth outlook is, after all, a function of earnings.
All around businesses are on the growth trajectory.
The DJIA Futures derive its value from the Dow Jones Industrial average.
If you carefully study the outlook for the future of these companies that comprise the Dow, there is good news in the offing.
Earnings for most companies is seen growing in a steady fashion.
Though the extent of the individual growth may not be huge, it is likely to be steady and stable.
This is primarily on the back of sustained GDP growth in Europe and China.
ECB’s Mario Draghi is likely to continue with its stimulus measures.
This is seen as a key catalyst to revive reasonable growth prospects across Europe.
This, in turn, will impact markets in the United States in a sustainable manner.
The US Economy on its own also is on a definitive positive trajectory.
Both these factors together are likely to push growth forward in a convincing manner.
So most investment analysts and strategists expect a slow but reasonable growth going forward.
That is likely to support the Dow Jones Industrial Average and the DJIA Futures too.
This is one of the biggest factors that will help earnings growth for corporates in general.
Earnings growth means that the fundamental business development is not compromised.
That also means that the true import of the growth will unravel in 18-24 months.
Just in case of a slowdown, even growth impact is seen in a gradual fashion.
So going forward, the DJIA Futures is likely to maintain its upward trajectory on the basis of this catalyst.
US Dollar Index & the Cues for DJIA Futures
Last but not the least, the cues from the Dollar movement is very important.
As you may know, the Dollar acts as both a haven for investments and a possible hedge against market uncertainties.
The Dollar movement also has a distinct impact on the interest rate outlook.
In this context, it is important to mention that 2018 so far has been a dollar positive year.
The Dollar Index hit important resistance levels, but the upmove in the greenback has halted after briefly hitting highs.
That could well be good news for investors.
It only means that the Fed may not raise rates despite this in the near future.
This is because the Dollar may not be able to sustain its gains in a convincing fashion.
The assumption is that though the Dollar Index has hit fresh 2018 highs, this is more due to external triggers.
That means there isn’t too much strength in a fundamental uptrend.
It goes on to highlight that the Fed will not be in a position to take any conclusive decision on the basis of this rally.
That means interest rates may continue to remain in the current levels for an extended period.
Low interest rates will always be positive for businesses.
So it is but obvious that any kind of business growth will always help the DJIA Futures to grow.
Another key trigger for the dollar’s inability to reach higher ground may be the Euro.
The Euro has been muted due to the political conditions across Europe.
This will be seen as a major dampener in any sustainable rise in Euro levels,
That, therefore, becomes another reason why the DJIA Future may go up going forward.
The DJIA Futures is representative of the fundamental trend in Dow and the broader markets.
Most forecasts and analysis indicate that the DJIA Future is on its way up.
30,000+ plus levels for the DJIA Futures by 2020 is one of the most popular expectations.
In many ways that also sets the tone of the market movement.
The Dow is definitively one of the biggest representatives of the global market trend.
Any uptrend is almost always punctuated by strong business growth and fundamental factors.
Though the fear of a pullback is gaining momentum, the DJIA Futures indicate that all’s well.
At least for the immediate term, the DJIA Futures will continue to go up.
30000 plus level is the next definitive resistance zone for the DJIA Futures.
The expectation is that the gains in DJIA Futures will continue till that level.