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Markets on the brink

Stock market investors are starting to focus more on recession signals than on the peak inflation story.

The stock markets remain on the edge of the abyss. Earlier we heard some headlines from Putin when the Russian president said the risk of nuclear war was “rising” and that he would defend Russia “by all means available.” This sent index futures lower, but markets quickly rebounded from their lows, only for sellers to return as European closes approached.

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We also saw US oil prices hit a new low below $73 ahead of the Ukraine invasion. A sharp rise in US inventories of petroleum products added to concerns about weak demand.

Stock market investors are starting to focus more on recession signals than on the peak inflation story. They fear that weaker demand in 2023 could hurt corporate earnings and current market valuations are too high. The fact that inflation remains at around 10% in Europe and is very high in other parts of the world means that central banks will tighten their belts and tighten their policies for long enough to further reduce demand. In the United States, the stronger wage and employment data we saw last week could further encourage the Fed to continue tightening interest rates to above 5% before the cycle pause. This is an additional risk faced by stock markets, especially those that pay little or no dividends.

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At the time of writing, the S&P has rebounded from its lows after testing one of the most important near-term support levels at 3914 (gray shading). This is also where the uptrend line converges. But now it is below the 21-day exponential moving average. A few days earlier, a retest and break above the SMA-200 moving average failed. The long-term downtrend also continued.

Source: TradingView, StoneX.

So, you have a feeling that if 3914 breaks now, we might have another down move. Let’s see what’s going on here. Bulls need to defend their position here if they want an upside or at least a retracement at the 3984 near-term resistance. If they don’t, 3840 – the bottom of the breakout – could be the next bottom target. fall for the bears.

Text: Fawad Razaqzada, FOREX.com » Official site

forex.com stock exchange FOMC

Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not warrant its accuracy or completeness and shall not be liable for any direct, indirect or consequential damages that may result from anyone relying on such information.

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