The broader markets sell-off implies growing fears of a possible economic recession, which may induce further panic selling if the risk-off sentiment continues to prevail, but it is too early to say there will be a market crash as fundamentally nothing had been changed from yesterday’s Fed-induced relief rally.
Further wild swings will be expected in a highly uncertain time. From the technical perspective, a near-term bottom view is still in place, with major indices holding at their key technical support.
The CBOE 20-year Treasury Bond (VXTLT)/blue line, vs. S&P 500 /while line, vs. CBOE Volatility Index/rede line (Jan 2003-May 2022)
Source: Bloomberg (Click to see the enlarged chart)
The above chart indicates an adverse correlation between the VXTLT and the S&P 500. The VXTLT tilts down from the peak of May, while S&P points up, which could indicate a near-term rebounding of the S&P 500, but we cannot confirm if this trend will persist.
S&P 500 – Daily (testing the pivot support that defines a further downtrend)(Click to see the enlarged chart)
The S&P 500 moves in a range between 4,100 (low on 5 June) and 4,300 (the high since 25 April), where the index is testing on the key pivot support near a one-year low. A bearish breakout of this support could trigger a further sharp selloff towards the next support around 3,955 (the 78.60% retracement of Fibonacci connecting from the low on 4 Mar and the high on the 4 Jan).
Key technical elements:
- In the last 8 trading days, the buy volume exceeds the sell volume, suggesting the bullish momentum may sustain.
- Historical Volatility Index tilts down from above 70, suggesting volatility may fade (usually a rebounding in a downtrend).
- However, both MACD and Stochastic returned downside moves, which indicates the selling pressure may persist.
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.