It's a sea of red for all the major US benchmark stock indices, as stocks recorded their worst daily performance since October. The S&P 500 declined by 2.6% to 3,750, after setting a fresh record high two days ago. In addition, the Dow Jones, Nasdaq 100 and small caps-oriented Russell 2000 also fell by -2%, -2.8% and -1.9% respectively.
Yesterday’s sell-off in the US stock market was across the board, where cyclical, value, small-caps and even big tech were hit in the claws of the bears, despite the outperformance in the past week after positive earnings releases from Netflix and Microsoft. With the exception of Microsoft (+0.24%), the rest of the big tech stocks suffered losses: Apple (-0.77%), Amazon (-2.81%), Facebook (-3.51%), Netflix (-6.88%) and Google/Alphabet (-4.67%) are fell. Other stocks also tumbled after their respective earnings releases: Starbucks (-6.5%), Boeing (-4%), Advanced Micro Devices (-6.5%) and Texas Instruments (-5.0%) are slipped back.
In contrast, stocks highlighted by Reddit’s WalllStreetBets, a forum which has gained widespread following among millennial traders, continued to surge due to a short and options mania that drove the share prices of GameStop (+135%) and AMC Entertainment (+301%) up to the moon. These astonishing rallies and outsized movements caught the attention of the US government and the White House, with the Treasury department commenting that they are monitoring the situation. The Securities and Exchange Commission said it was keeping an eye on the stock and options market.
The US Federal Reserve FOMC monetary policy meeting concluded with no change on its current stance, with its key overnight interest rate remaining at 0-0.25% and the current pace of its $120 billion of monthly bond purchases to provide “sufficient liquidity” to the financial system. In addition, Fed chair, Jerome Powell, commented that the Fed was nowhere near tapering its current bond buying programme, as the recovery has moderated in recent months.
Overall, due to the ongoing euphoric price movements seen in the penny stocks space has created instability, hence the negative feedback loop being fed into the broader market that triggered yesterday’s widespread sell-off. From a technical analysis perspective, the medium-term uptrend phases for the S&P 500 and Nasdaq 100 remains intact for now, as their respective key supports at 3,750 and 13,020 have not been breached to the downside.
Chart of the day – US NDAQ 100
Watch the 13,020 key support level on the US NDAQ 100 .Source: CMC Markets
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