Nasdaq Hit Hard Despite Afternoon Bounce

The Nasdaq has been in the center of attention on Wall Street yet again, as the tech benchmark continues to lead the selloff in US stocks. The Nasdaq hit a two-month low today, dipping below last week’s low, while the S&P 500 and the Dow are still faring better from a technical perspective. The industrial average fell to its lowest level since mid-September, while the S&P 500 hit a 6-week low in the thin market, with the US bank holdiay contributing to the large swings in equities.

Nasdaq 100 Futures, 4-Hour Chart Analysis

We pointed out the importance of the move in the US Volatility Index (VIX) during the weekend, and the key risk measure continued to confirm the deterioration in investor sentiment, spiking above 18, the highest level since late June.

VIX (Volatility Index), 4-Hour Chart Analysis

While the fear-index is still below the 20 level, which is considered the line-in-the-sand by the majority of analysts, the behavior of the VIX changed, and although today’s US bank holiday likely contributed to the wild swings, this is something to keep an eye on in the coming weeks.

EEM (Emerging Market ETF), 4-Hour Chart Analysis

The risk-off shift continued in earnest globally, even as emerging markets showed some stability thanks to the post-election rally in Brazilian assets. That said, the EEM ETF is trading at levels last seen last April, and the selloff in Chinese markets suggests that selling pressure will persist, especially if the Dollar continues higher.

The Greenback gained ground compared to the Euro, the Pound, and the majority of emerging market currencies, and although the Yen, the Aussie, and the New Zealand Dollar managed to stay in the green, the uptrend in the Dollar-Index is clear. This week’s US inflation indices will likely be crucial in deciding the fate of the Dollar’s current rally, which in turn could affect trading across asset classes.

Treasury Yields Pull Back From Multi-Year Highs

10-Year US, 4-Hour Chart Analysis

While the surge in US Treasury yields, especially the speed of the move, was the trigger of the current move is stocks, today ’s shallow dip in yields wasn’t enough to reverse the move in equities, although contributed to the late-day rally. Also, market internals were pointing to a correction before the break-out in yields, so until we don’t observe a material improvement in small-caps, bulls shouldn’t put their “buy-the-dip” hats on.

Gold Futures, 4-Hour Chart Analysis

The more than 1% decline in gold was the most important move among commodities today, as together with the Dollar’s rally, the precious metal plunged below the $1200 level again, putting the late-September low near $1180 into play again. Gold formed a possible reversal pattern last week, but it failed to break-out above the key resistance zone near $1220, and a move below the lows would warn of a test of the $1145-$1150 zone.

Crude oil also lost ground today amid the risk-off shift, and the WTI contract continues to trade below $75 per barrel level and the July low, risking a failed break-out reversal. Copper held up relatively well in the face of the Chinese selloff today, and it remains above the strong support zone between $2.70 and $2.75 for now, although the long-term trend is still clearly bearish.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.