The focus on Wall Street was on the results of the Mid-term Elections. Although Republicans made slight gains in the House, the tight races left control of the Senate up for grabs. The lack of a red wave in Congress led to the three-day market rally abruptly ending as stocks finished with their red wave to the downside.
Instead of the usual rally after Mid-term elections, all eleven (11) of the S&P sectors fell, with the Energy sector (XLE) as the leading decliners with losses of -4.89%, followed by Consumer Discretionary (XLY -3.05%), and Technology (XLK – 2.60%).
The SPX Index (SPX – 3,948.57) lost 2.08% as it slipped below its 50-day ma (3,791). The Nasdaq Composite Index (COMPQ – 10,353.17) and the Nasdaq 100 Index (NDX – 10,797.55) continue to lag their equity counterparts, declining another -2.48% and -2.23%, respectively.
In other headline news, Disney (DIS) reported disappointing quarterly losses. DIS executives warned of slower earnings and sales for next year and possibly a peak for their business. DIS, a Dow Jones Industrial component, plunged 13.13% Wednesday, resulting in one of its worst trading sessions since 9/11 and leading to INDU falling 646.89 points or -1.95%.
The sudden liquidity crunch from the selloff in Cryptocurrencies resulted in investors and traders fearing contagion. The news that Binance is walking away from a deal to acquire rival FTX led to another selloff. The Securities and Exchange Commission has expanded its investigation into the Cryptocurrency platform FTX after its collapse this week. Bitcoin is trading at its lowest level in two years as the leading Crypto fell -14.03%, Ethereum also declined -15.71%, Litecoin lost -14.02%, Chainlink plunged 19.18%, and XRP plummeted -19.18%.
The demand for Treasuries has decreased as there are fewer interests from large buyers such as Japan and concerns regarding Fed's aggressive rate hikes. The $35 billion offering of the 10-year note shows one of the weakest demands in years. The 30-year US Treasury Yield (TYX) jumped 0.62 to 4.320%. The 10-year yield (TNX) also moved up 0.25 to 4.151%.
While markets will continue to digest and process the Mid-term results, investors and traders will turn to the release of the Consumer Price Index (CPI) for October tomorrow for guidance.
Enclosed are updated technical levels for SPX.
Supports: Watch for SPX pullbacks to test initial trading support at 3,698.15-3,721.56 (11/3/22 and Jul 2022 lows). Violation here opens the door for a decline toward 3,636.87-3,647.42 (6/17/22 and the 10/21/22 positive outside day low) and below this to 3,584.13 (Sept 2022 low), and 3,491.58 (10/13/22 reaction low). A breakdown here warns of a deep decline to 3,313
Resistances: The challenge for SPX is to reverse above the 50-day ma (3,791), preferably by the end of the week.
The ability to surpass the pivotal 50-day ma helps to ensure the continuation of the 10/13/22 oversold rally. Secondary resistance resides at 3,908-3,946 (the 50% retracement from Aug-Oct 2022 decline and the 6/28 and 11/1/22 highs).
Above which can extend the SPX oversold rally toward 4,007-4,037 (bottom of the 9/13/22 gap-down and the 61.8% retracement) and above this to 4,084-4,119.28 (top of the 9/13/22 gap-down, 200-day ma, and 9/12/22 island reversal high), 4,177.5-4, 219 (top of the Jan 2022 downtrend channel, 6/2/22 high, and 8/22/22 gap-down), and 4,325.28 (8/16/22 reaction high).