Oh, how quickly the trading tables can turn!
It seems like just yesterday when we said that all systems were go for the S&P 500 heading into earnings season (in actuality, it was just last week). While we had softened our tone as the price action deteriorated, the ferocity of Wednesday’s selloff is something that few traders saw coming.
At the close on Wednesday, the widely followed Dow Jones Industrial Average had shed 831-plus points to trade well below 26,000, while the S&P 500 lost nearly 95 points (it closed at 2785) and the NASDAQ was down to 7422, closing off by more than 4%. The DJIA saw its fifth straight bearish day, which marked its longest losing streak since November 2016.
While the proximate catalyst for Wednesday’s brutal selloff is difficult to pin down, some commentators are pointing to the continued march higher in bond yields, signaling rising borrowing costs and an increasingly attractive investment alternative to equities. Interestingly, this has not resulted in a classic “risk off” trading environment, as gold traded essentially flat on the day and safe-haven currencies like the yen, Swiss franc and US dollar saw mixed trade.
Regardless of the fundamental explanation, it’s clear that we saw significant technical damage on both an individual stock and broader index basis Wednesday. The S&P 500 was putting the finishing touches on a large “bearish marubozu” candle, signaling strong selling pressure throughout the day and suggesting that we could see a bearish continuation in the days ahead. The index has clearly broken its bullish channel off the April lows, opening the door for a deeper drop toward the Fibonacci retracements of the 6-month rally at 2793 (38.2%), 2748 (50%) and 2702 (61.8%).
Daily S&P 500
Source: TradingView, FOREX.com