Wall Street had its worst trading day in nearly two years last Friday, with Dow Jones tumbling over 660 points or 2.5% amid worries that treasury yields are surging and inflation is rising at a faster pace.
The upbeat January non-farm payroll was a catalyst for the sell-off. In a market that many start to realise the adverse impact of rising interest, ‘good news’ are interpreted as ‘bad news’ because strong economic data will lead to a more hawkish Fed.
This round of correction is different from the many technical correction we’ve seen over the last two years. It is triggered by the treasury and bond market sell-off, rather than geopolitical tensions or other stock related reasons observed before. It looks like all assets are falling including the safe-haven gold and silver. The only rising index on my watch list is vix – the volatility index. A deeper correction is possible until market strike a balance between current rich equity market valuation and rising interest rate environment.
Technically, the S&P 500 index has entered into a bearish trend with both of its 10-Day SMA and SuperTrend (10, 3) flipping downwards. The momentum indicator MACD has formed a ‘dead cross’ and is trending lower, suggesting selling pressure is accelerating. The immediate support and resistance can be found at around 2,735 (100% Fibonacci Extension) and 2,784 (127.2% Fibonacci Extension) respectively.
The bloodbath is likely to continue across Asian markets today as panic sentiment is spreading globally over the weekend. Nikkei 225 index opened 353 points or 1.3% lower and is trading lower to 22,800 area now. In Singapore and Hong Kong, the sell-off may accelerate today due to negative sentiment from the US market over the weekend and profit taking ahead of peak earnings season. Technically, the immediate support and resistance for Hang Seng could be found at 31,855 (127.2%) and 32,870 (161.8%) area respectively.
Singapore’s Straits Times Index opened nearly 50 points lower this morning to 3,480 area. The downside is cushioned by improved fundamental elements and relatively-low valuation, therefore value investors should have confidence about the market outlook beyond this correction.
US SPX 500 - Cash
CMC Markets is an execution-only service provider. 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.