The Nasdaq has fallen 10% in two weeks while the year-long uptrend for the S&P 500 is also entering a consolidation phase.
Hebe Chen | Market Analyst, Australia | Publication date: Thursday 20 January 2022
The US equity markets' risk-averse sentiment pushed the Nasdaq Composite into correction territory on Wednesday's trading session. It seems that fear over shrinking earning capability, amid potential tightening monetary policy, has evoked widespread doubt about the tech stocks that commonly enjoy the fastest growth and highest price-to-earnings valuation.
The recent turbulence in tech stocks was triggered by a spike in yields, which continued to send the 10-year U.S. Treasury yield to a high of 1.9% - 6% higher than where it started this year. As a result, Nasdaq has free-fallen 10% in two weeks, from 16589 on January 4th to 15030 on Wednesday this week. Nearly all of the tech giants have slipped: since the start of 2022, Amazon has lost 6.45%, while Apple and Alphabet dropped 8.6% and 8.2% respectively.
From a technical standpoint, the shape of a downward trajectory has emerged to see the index potentially move further down to 14573 if the risk-off sentiment elevates. At the same time, the level of 14936 might provide some support before the floor level. On the other hand, if the Federal Reserve (Fed) chooses to soothe the market in the next Federal Open Market Committee (FOMC) meeting at the end of the month, the index may shrug off the haze and eye 15671.
S&P 500 falls below multiple key supports
The S&P 500, meanwhile, fell for a second day and ended Wednesday's trading session under the 200-day moving average (MA) for the first time since October. The index fell by 1%, dragged mainly by technology and struggling bank stocks.
From the technical chart, it looks like the S&P 500 has also broken through the lower boundary of the upward moving band since August. Also enhancing the bearish view is the leg down from the second “shoulder” from the head and shoulder shape formed since December 6th. Both indicators have cemented the view that the year-long uptrend for the index is entering a consolidation. Moreover, a correction could be a prospect should the index move towards the 4318 level.