Stocks at risk as crypto turmoil adds to Chinese worries

Overnight saw shares in China and Hong Kong drop sharply, causing a weaker session in Europe. US index futures also fell, leading to a lower open on Wall Street. China’s covid outbreak, turmoil in cryptos space and US mid-term election uncertainty have all helped to dent sentiment somewhat after the recent sharp recovery in the western stock markets.

China worries resurface

China just can’t catch a break, with local stock markets resuming their falls at the start of this week after officials denied reports that the country was dropping its Covid Zero policy. Crude oil has also come under pressure amid worries about demand in the wake of fresh COVID outbreaks. Cases have surged in the manufacturing hub of Guangzhou, as well as a number of other Chinese cities. Guangzhou is partially locked down amid virus outbreak. There may well be further growth-chocking lockdowns to come. This has been among the reasons why China’s economic growth has been so weak this year and it is precisely what investors are worried about again.

Crypto turmoil

In addition to worries over China, there is also the ongoing turmoil in cryptos space. Today, Bitcoin dropped to a new low for the year after breaking the June low. Solana lost a third of its value today before bouncing off the lows.  FTT, the FTX token, is reeling after giving up as much as 88% of its value this week.

Cryptos have sold off sharply over the past couple of days on renewed liquidity fears in the industry. Troubled crypto exchange, FTX, is in talks to be rescued by Binance, after it halted withdrawals. Binance signed a nonbinding agreement on Tuesday to buy FTX's non-US unit. So, questions about the solvency of one of the world's largest crypto exchanges remain as there are no guarantees the deal will go through.

Even if you are not involved in cryptos, the turmoil is definitely something to keep an eye on, as it may be an additional factor impacting risk appetite across the financial markets.

US election uncertainty

All of the above is adding to US mid-term election uncertainty, as control of the US House and Senate was still up in the air. As states across the US tally votes, the neck and neck contest will determine whether Democrats will keep their slim majorities in the House and Senate, or if Republicans will gain control of either or both chambers.

Dow testing major zone

With everything going on and the Dow being at this key technical juncture, a big move is likely to come next:

As the chart shows, the Dow is testing major resistance around the 33K area, where a coupe of long-term bearish trends lines converges with the prior resistance zone.

What happens here will determined whether the Dow will be able to hold its breakout above the 200-day moving average.

A potential break below 32100 support will put the bulls in a spot of bother, potentially leading to a sharp follow-up sell-off.

Finally, some corporate news

Here are a few headlines, as reported by my colleague Joshua Warner:

• Tesla shares rebounded from 17-month lows after CEO Elon Musk sold another chunk of his stake in the electric vehicle maker.
• Meta shares were up around 4% after culling 11,000 jobs, installing hopes it can get a better grip on costs.
• Disney shares plunged over 7% and flirted with post-pandemic lows as streaming losses widened and theme park profits missed expectations.
• AMC shares fell as weak film slate led to disappointing results and heightened concerns about cash burn and debt.

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