The US stock market sold off today with some of the largest declines in recent months. The S&P 500 Index (SPX) fell 90.48 points (-2.04%), recording the worst trading session since May. The Dow Jones Industrial Average (INDU) suffered a more modest decline of 569.38 points (-1.63%) or the worst decline since last week’s downturn. The technology-laden Nasdaq Composite Index (COMPQ) plummeted 423.29 points (-2.83%) or one of the worst trading days since March.
The investor's anxiety tends to be elevated during the seasonal weakness period of September. However, today’s testimony by Fed Chairman Powell and Treasury Secretary Janet Yellen before Congress regarding the Covid-19 pandemic and the CARES Act spoked the marketplace. Powell’s remarks about inflation and Yellen’s warning to Congress about the need to raise the debt ceiling by October 18th causes many investors to be uneasy and consumers less confident.
The widely followed Conference Board’s Consumer Confidence index has also declined for the past three consecutive months ending in September as concerns of higher inflation, debt ceiling debacle, Covid-19 delta variant, and taper tantrum dampen optimism.
Investors have been avoiding US government bonds since last week’s FOMC meeting. The 10-year Treasury yield (TNX – 1.534%) rose 0.05 or 3.37% today. TNX has rallied for six consecutive days and challenging the high levels from June and key resistance. The question is – can TNX trend higher?
It appears the stock market has been driven by the market action of the bond market. Rising yields the past week have hurt most stocks but specifically many of the technology and growth-related shares. TNX is nearing pivotal resistance at 1.53-1.596% (9/23/21 breakout target, 61.8% retracement from Mar-Jul 2021 decline, Mar 2021 downtrend, and 6/16/21 highs). If yields continue with its rally higher, then this will result in further underperformance by growth stocks. On the other hand, a stabilization in yields will allow for a stock market recovery and the return to growth-related stocks. We recommend investors and traders monitor interest rates to gauge the extent of the current correction. But also, to determine the relative outperformance in major stock market indexes, investments styles, and sectors.
Most US indexes have sold off as rising bond yields took their toll on stocks. SPX gapped down sharply today and is nearing its 9/20/21 reaction low of 4,305.91. Violation confirms a lower-low and warns of a deeper correction to 4,233.13 (7/19/21 low) and below this to 4,128 (200-day ma). The gap-down today at 4,419.5-4,436 is initial resistance, above this to 4,465.5-4,480 (8/16 and 9/23 highs or the left and right shoulders), and 4,545.85 (9/2/21 all-time high). The blue-chip Dow Jones Industrial failed to clear above the right shoulders at 34,990-35,061(50-day ma, 9/14, and 9/17 highs or the right shoulders). Watch for another pullback toward neckline support at 33,300-33,700 (200-day ma Jun/Jul/Sep 2021 lows).
NASDAQ led today’s broad market decline as rising bond yields pressure technology and growth-related stocks. Technology stocks were the day’s worst-performing S&P sector. XLK fell 2.96% by the end of the day. Semiconductor Index (SOX) gapped down and fell 3.90%. Biotechnology Index (BTK) collapsed below its 50-day and 200-day ma, losing 2.56% for the day.
The mega-cap tech-heavy Nasdaq 100 Index (NDX – down 2.86%) also gapped down today, undercutting last week’s trading low. The decline also convincingly breached the 50-day ma (15,214.27). The breakdown is worrisome as NDX is the first of the key US indexes to generate a lower-low pattern. NDX is now challenging the pivotal neckline support coinciding with the Aug/Sep reaction lows at 14,773-14,821. The height of the head/shoulders top is 928.21 points. A breakdown warns of a deeper correction to 13,845-13,928 (h/s top breakdown target and 200-day ma). Key initial resistance is 15,049.5-15,106.5 (9/28/21 gap-down), and above this to 15,184.5-15,214 (7/26 and 8/5 highs or left shoulders and 50-day ma), and 15,356.92 (9/23 high or right shoulder), and 15,701.40 (9/7/21 all-time high).