Stocks: Cracks starting to appear after big recovery
Fawad Razaqzada August 17, 2022 11:10 AM
The list of worries for investors grow larger...
As we mentioned the possibility in at least two of our report the day before, the stock market recovery was at risk of a reversal. Lo and behold, we have seen a sharp sell-off today, led by the German DAX index with a fall of nearly 2%. US markets have opened sharply lower after future skidded along with their European peers. They could extend their losses in the event the FOMC’s last meeting minutes, due for release later, reveal a more hawkish-than-expected Fed.
Insofar as today’s stock market drop is concerned, there was no obvious single trigger behind the sell-off, although that big inflation print in the UK did little to calm investor concerns about stagflation. Earlier in the week, we had another very poor ZEW survey reading from Germany, where concerns are growing that that additional energy costs for households and businesses will weaken an already struggling economy in the months ahead. Indeed, it is progressively becoming difficult for investors to justify maintaining an optimistic view on the stock markets given a challenging global macro-outlook. This was evidenced, for example, by a poor Empire Fed Manufacturing Index print and weak Chinese industrial and retail sales data on Monday, reminding us that it is not just Eurozone that is struggling for growth.
Against this backdrop, today’s sell-off should surprise no one.
Russell back below 200-day is a bearish signal
As per our analysis in the Technical Tuesday report (which we publish and update the same link every week), US indices have indeed turned around, with the S&P finding strong resistance from the 200-day moving average. With a not-so-great macro backdrop, we were always going to get at least some long-side profit-taking around these levels. But if the weakness holds into the close, then this will likely lead to further follow-up technical selling in the days ahead.
Along with the SPX, it is worth watching the Russell as well, for it has – for now – refused to hold above its 200-day average, which looks like a typical failed breakout scenario. A close around current levels or lower would be considered bearish.
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
- Open a Forex.com account, or log-in if you’re already a customer.
- Search for the pair you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.