Election uncertainty and fears of a rate rise by the FED in December rattle the US markets as the S&P 500 and Dow Jones Index breaks key support lines.
It seems a shift in sentiment towards Trump over Clinton in the US election, due to the reopening of the Clinton email scandal investigation by the FBI has spooked the markets. To make things worse it seems the market is also convinced that a rate rise in December is going to ahead as the market is pricing a 75% probability.
Too Much Uncertainty Breaks S&P 500.
Overnight the S&P 500 finally broke a key support line of 2125 (see chart) on increased volume. Mild panic has begun to take hold as the market attempts to digest all the recent news with regards to the election. The break of support also confirms the recent reversal of the long term uptrend for the index which occurred a few weeks ago (Circled on chart).
The S&P 500 closed at 2,111 yesterday with a 70 - 75 point or 3.5% gap between the current price and the next support level on the daily chart. With rate rise odds rising and the US election still 4 trading days away, we could see the index under more pressure over the week.
Normally when stocks are under pressure and there is uncertainty in the markets, investors take refuge in bonds bidding the price up which brings rates down. Currently this is not the case as bond yields continue to rise in conjunction with the market probability of a rate rise in December moving higher (see chart below).
Will The FED Save The Market Again?
With the increased volatility in the markets it's very possible that Janet Yellen (FED chairperson) could deliver dovish comments in today's FED's committee meeting to try and soothe the market fears about a rate rise and spark a rally in the markets.
The Dow Jones index is showing a similar pattern to the S&P 500 index. You will notice before yesterday's price action to the downside the Dow Jones has been stuck within a tight sideways channel unsure which direction to go.
Considering that Dow Jones has made another attempt at breaking support on heavy volume after recently breaking it's long term uptrend (see boxed area in chart), could be the final confirmation of lower prices ahead for the index.
If break of support is to hold especially after today's FED committee meeting, expect the Dow's next support level to be around 17,130. Since the Dow Jones closed at 18,037 yesterday this is big gap to fill as there is 907 points gap between support levels. To be fair though there is a minor support level around 17,600 to first clear. However this is not a major support level for the index which is why I have not highlighted it within the chart.
The chart below show's simply what is probably causing the biggest grief for the US markets right now. The outcome of the election is now in jeopardy as the markets had previously priced in that Clinton was to win the election convincingly. Now the market isn't quite sure about the outcome.
The first of the red dotted lines was on last Friday when news was released to the market that James Comey the director of the FBI had reopened the investigation of Hillary Clinton and her emails scandal as fresh evidence was found compelling the FBI to take further action.
The news of the investigation caused panic in the markets on Friday (see chart), with further selling continued as new polls were released that Clinton was falling in the polls. While Trump has quickly jumped higher because of the latest scandal. Than more news was announced that additional evidence was found causing even more selling initially before recovering slightly.
The Nasdaq index below shows more resilience compared to the S&P 500 and the Dow with regards to its reaction to the uncertainty.
You can see that the Nasdaq is still holding support of 5125, after touching the support level during yesterday's trade, however recovered to close at 5153. If support is unable to be held over the next few days the next level of support is between 4965 - 4970.
The other interesting thing compared to the other index's reviewed is the fact that the Nasdaq is still within it's uptrend as the FANG (Facebook, Apple, Netflix, Google) stocks strong performance have kept the market strong relative to the other US indexes.
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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.