S&P 500 and Dow 30 – Strong Bearish Play With Technicals and Fundamentals In Tow

US stocks fell on Monday with S&P 500 shedding 0.85% and Dow 30 closing 0.90% lower. This decline is not surprising considering that risk appetite during Asian session was extremely bearish with the US Government Budget deadlock continuing coupled with the World Bank’s downgrade of China’s growth forecast. What is more interesting is that things began to look more positive during European hours, where both S&P 500 and Dow 30 Futures started to rebound higher, reclaiming back the huge losses racked up during Asian hours. This recovery continued well into the US session, only to see things unraveling towards the final 2 hours of trade where sharp sell-offs were seen, bringing us back close to the lows of yesterday.

S&P 500 Hourly Chart


It should be noted that there wasn’t any fundamental drivers which during either European or American session. And considering that both major turning points during the European rally and the American sell-off happened on significant support/resistance levels, it is obvious that Technical influence is high. It is likely as well that the bearish risk sentiment that has been in play earlier contributed to the sharp sell-off, undoing 8 hours of rally in just 2. What is perhaps even more noteworthy is that the bearish momentum that started from the late American session has spilled over into the Asian session, with price breaking yesterday’s low and hitting 1,670 round figure support – an anomaly considering that US Futures tended to be relatively insensitive to broad Asian risk aversion.

This leads us to the conclusion that either the risk aversion has grown so great, which implies that likelihood of Asian stocks trading even lower is high, and the potential of European stocks following suit is high as well. An alternate explanation is that Technical bears are simply aiming for the stronger support level and the latest bearish move during Asian hours should not be over-interpreted. In this case, the 1,670 round figure will help shed some light on what the market is thinking. Break it and the former assertion is true, vice versa.

Dow 30 Hourly Chart


The same could be said of Dow 30. Even though price action in Dow 30 is much more bearish with current price levels trading below yesterday’s swing low, current price level is still above the Channel Bottom and we could still see prices rebounding higher from here. If this indeed happen, the assertion that current decline is technical based becomes stronger. However, given that prices in Dow 30 is already bearish, continued trading lower may not necessary mean that the bearish sentiment is strong and this could still be interpreted as a continued technical momentum.

More Links:
GBP/USD – Moves well off Support at 1.60
AUD/USD – Some Short Term Support at 0.94
EUR/USD – Key Level of 1.3550 is Reinforced

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu