S&P 500 - Cracks appear on the path to fresh record highs
A batch of tech stocks got hammered yesterday sending the NASDAQ 100 down 1.6% on the first trading day of 2024. Some of the brightest names responsible for pushing the market higher last year hit a brick wall. Apple lost close to 4% on a Barclays downgrade, while AMD fell 6% and Nvidia ended the session 2.7% lower. Intel also came under selling pressure and was down 4.9% by the close. The general stock market weakness has continued this afternoon. Investors appear to have woken up to reality after nine weeks of relentless gains. Just like Wile E. Coyote, traders looked down, realised they’d been running on thin air and that gravity must now take over.
The charts of all the major indices were looking overbought, overstretched and vulnerable to a pull-back. The question is how far down will the sell-off take us? We could see a relatively shallow decline if enough market participants are ready to add to their long side exposure. After all, the S&P 500 (unlike the Dow and NASDAQ) has failed, so far, to make a new high in the bull run from late October. Could this persuade traders that there’s still some upside in the market? Or is that failure an indication that the bull run is over? The upcoming 4th quarter earnings season may be the perfect excuse to take profits and it’s possible that we get something deeper now, as there have been no serious corrections in the whole of this bull run.
The S&P 500 is currently testing support around 4,700. If we see a significant break below here, then the next obvious area of support comes in 100 points below. The area around 4,600 acted as resistance at the end of July and also early December. If the sell-off continues, then it should prove to be an important level of support, and a big test for fresh buying interest.
Much will depend on bond yields. These shot higher yesterday and are up again today. Investor expectations for sharp rate cuts this year looked overdone. But if these steady and coalesce around reasonable levels, then equities could soon be back in favour.
The charts of all the major indices were looking overbought, overstretched and vulnerable to a pull-back. The question is how far down will the sell-off take us? We could see a relatively shallow decline if enough market participants are ready to add to their long side exposure. After all, the S&P 500 (unlike the Dow and NASDAQ) has failed, so far, to make a new high in the bull run from late October. Could this persuade traders that there’s still some upside in the market? Or is that failure an indication that the bull run is over? The upcoming 4th quarter earnings season may be the perfect excuse to take profits and it’s possible that we get something deeper now, as there have been no serious corrections in the whole of this bull run.
The S&P 500 is currently testing support around 4,700. If we see a significant break below here, then the next obvious area of support comes in 100 points below. The area around 4,600 acted as resistance at the end of July and also early December. If the sell-off continues, then it should prove to be an important level of support, and a big test for fresh buying interest.
Much will depend on bond yields. These shot higher yesterday and are up again today. Investor expectations for sharp rate cuts this year looked overdone. But if these steady and coalesce around reasonable levels, then equities could soon be back in favour.