Technical Analysis

No festive cheer for equities as rebound fizzles


The week started off well for stocks as it gained strongly after the softer US CPI data, although gains eased towards the end of Tuesday. After that, a more hawkish Fed sparked some selling pressures and volatility on Wednesday before the selloff intensified yesterday, spurred on by a more hawkish ECB as well.

There’s the narrative that markets are growing increasingly worried about the global growth slowdown and a ‘hard landing’ as central banks continue to tighten policy further, but I want to say that the technicals have also played an important role this week:

I pointed out how equities may be a key driver in influencing broader market sentiment and that arguably played a role in sending the dollar back higher amid all the central bank chaos this week.

The failure in the S&P 500 to break above the key trendline resistance (white line) for this year has been the most notable development this week, allowing for the downside pressure to build and a more hawkish Fed and ECB helped to vindicate the selling momentum. And right now, we saw a break below the 100-day moving average (red line) after previous failed attempts to break lower.

As such, sellers are now in control and that means no festive cheer for stocks heading into the holiday period.

The double-top pattern around 4,100 now has the potential to target a flip to the downside to around 3,760 next potentially. Then, the 3 November low at 3,698 will be the next key support level to watch for.

But just be mindful that as we head into Christmas, liquidity conditions will be thin and that might make it tricky to read into any moves before the turn of the year.

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