Major stock markets in the United States posted sharp losses, as the Dow Jones Industrial Average posted its biggest drop since June 2020, following inflation concerns.
The S&P 500 Index closed down more than -4%, the Dow Jones Industrials Index closed down more than -3% and the Nasdaq 100 Index closed more than -5%. The prospect of lower corporate earnings, as well as rising prices and the prospect of slower economic growth from a tightening Fed weakened stock prices.
High-valued technology stocks also fell sharply, on the prospect of the Fed continuing to raise interest rates aggressively. In addition, concerns over China maintaining the lockdown weighed on stock prices and the outlook for global growth is getting bleak. Fed Chair Powell previously said that the Fed would not hesitate to tighten policy beyond neutral to curb inflation and would continue to raise interest rates until there is clear and convincing evidence that inflation is falling.
Chicago Fed President Evans’ comments also weighed on stocks as he said he sees a half-point rate hike in the upcoming FOMC meeting and after. He also said that he expects the economy to cool down because of the Fed’s tightening policies.
Technical Overview
USA100 posted a decline of -5.5% on Wednesday (18/05) with the total decline for May to date reaching more than -7% extending the -13% decline in April. Further downside is projected for 100% FE at 11,441 (from drawdowns of 16,767-12,944 and 15,264), if it manages to break through the 11,688 support with a continuation target at the 11,000 round-figure mark, before reaching up to the 61.8% retracement of the FR. The previous decline had bounced at the 50.0% FR retracement area last week. Further decline is expected to continue as long as the support at 12,944 which has now become resistance remains intact.
On the upside, a break of the 12,588 minor resistance will most likely test 12,944. However, a break of the resistance at 13,546 will bring the price bias back to the upside and confirm that the correction to the advance of 6,632 has paused at the level of 50.0% FR (from drawdowns of 6,632 and 16,767).
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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