S&P 500 Breaks Below Crucial Support
The S&P 500 index, which tracks the performance of the 500 largest US companies, fell nearly 2% to 4,582 on Tuesday, breaking below important support levels, including the June low of 4,325, the 89-day moving average, and the lower edge of the Ichimoku cloud on the daily charts. This break is significant because it signals the end of the higher-top-higher-bottom sequence that has been in place since the beginning of the year. The next support level to watch is the 200-day moving average around 4,195, followed by the end-April low of 4,050. A decisive, consecutive daily close below these levels would increase the chance of downside risk to the next major support level of 3,800.
Dow Jones Falls Below Resistance-Turned-Support
The Dow Jones Industrial Average (DJIA), which tracks the performance of 30 blue-chip US companies, also suffered a heavy loss on Tuesday, falling below a resistance-turned-support level on a horizontal trendline from July. This break suggests that the index may continue to move lower, potentially heading towards the May low of 29,600 and possibly the 200-week moving average around 31,720. The DJIA has been underperforming the other major US indices, as it failed to make a new record high since November 2022, unlike the S&P 500 and the Nasdaq 100.
Nasdaq 100 Tests Key Horizontal Trendline
The Nasdaq 100 index, which tracks the performance of the 100 largest US technology companies, is currently testing a crucial horizontal trendline from June. If this trendline is broken, it would trigger a head and shoulders pattern, with the price objective of the pattern around 13,200, near the 200-day moving average. Additionally, the momentum on the monthly charts for the Nasdaq 100 has been weak compared to the strong rally seen since late 2022. This raises the risk of a gradual weakening, similar to what has been observed in gold since May.
What’s Behind the Market Sell-Off?
The main factors behind the market sell-off are the hawkish pivot from the Federal Reserve, the rising inflation and interest rates, the uncertainty over the debt ceiling and government shutdown, the spread of the Omicron variant, and the geopolitical tensions between the US and Russia over Ukraine. These factors have increased the volatility and risk aversion in the market, leading to a flight to safety and a rotation out of growth and technology stocks. The market is also facing a lack of positive catalysts, as the earnings season is over and the fiscal stimulus is delayed.