Is Another Major Sell-Off On the Way?

Dow, S&P 500, Nasdaq 100 Price Analysis:

  • The February-March sell-off had reverberations throughout global markets, with the Dow down by as much as 38.5%, the S&P 500 off by as much as 35.9% and the Nasdaq 100 giving back as much as 32.1%.
  • For almost a full month, buyers had control with US equities jumping-higher, aided by some massive government stimulus programs that helped to ease worries.
  • Yesterday’s carnage in oil markets continued for another day and with both the supply and demand sides of the equation remaining worrisome, there may be continued collateral effects as market confidence wanes.

Dow, S&P 500 Push Back Down After a Month of Rebound

It was almost a full month of calm after stocks bottomed around March 22nd; and in the time since the S&P 500 went on to gain as much as 32.6% from the March lows up to the April highs.

The driver for the prior bearish run was fairly obvious: Widespread shutdowns in the effort of flattening the curve and stemming the spread of the novel coronavirus. As this was happening, a few potentially problematic areas began to flare with risk aversion, key of which were US Treasuries and the US Dollar, which gained as much as 8.8% from the March low up to the March high.

It appeared, at the time, that the big fear was that an already highly-leveraged global economy may see collateral effects from the near-certain economic slowdown that would emanate from the coronavirus-related shutdowns, and with the mayhem in oil markets yesterday, that fear may be making a stark reappearance into the equation. And while a portion of yesterday’s mayhem in oil prices can be chalked up to futures market dynamics, as discussed by John Kicklighter, today brought more volatility into the mix as oil prices again sold-off. Our own Martin Essex discussed earlier this morning how that carnage in oil prices has already impacted sentiment; and the response in stocks has thus far been fairly pessimistic.

US stocks continued to trade-lower today, and in the S&P 500, this shows as a push below a rising wedge pattern that had built in the month since those lows were set in March. Today’s bearish push has brought not only a break below the support side of that wedge pattern, but the print of a fresh weekly low and a bit of resistance off of a prior support area showing in the approximate area of 2753, which had helped to hold the lows just last week.

S&P 500 Four-Hour Price Chart

Chart prepared by James Stanley; SPX500 on Tradingview

As discussed in webinars over the past month, amongst major US equity indices, it appears that the Dow Jones Industrial Average has been the laggard; getting hit a bit harder on the way down and then being a bit slower to rally on the way back-up. Resistance in the Dow showed up in a confluent area on the chart, as there are a couple of Fibonacci levels meshing with a trend-line projection that can be found the February 2016 swing low to the December 2018 swing low. For those looking at bearish strategies in US equities, the Dow may continue to hold some element of attraction.

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Dow Jones Industrial Average Weekly Price Chart

Dow Jones Weekly Price Chart

Chart prepared by James Stanley; Dow Jones on Tradingview

While both the S&P 500 and the Dow got hit incredibly hard in the February-March sell-off, the Nasdaq 100 held up a bit better. The sell-off wasn’t quite as deep, and the corresponding rally appeared to show in a more clean manner. And a similarly drawn trendline on the Nasdaq 100, taking the 2015 low to the 2018 swing-low held during the sell-off; whereas the comparable trendline on the Dow Jones Industrial Average came in to show as resistance. For bullish US equity scenarios, the Nasdaq 100 may continue to be a bit more attractive than both the Dow Jones Industrial Average and the S&P 500 given these recent dynamics.

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Nasdaq 100 Weekly Price Chart

Nasdaq 100 Weekly Price Chart

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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