Is Fear of the Stock Market Crash Justified?

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The U.S. stock market indexes lost 2.4-4.4% on Wednesday, accelerating their downtrend, as investors' sentiment much worsened following global stocks markets' decline. The S&P 500 index is currently 9.7% below its September the 21st record high of 2,940.91. The Dow Jones Industrial Average lost 2.4% and the Nasdaq Composite fell 4.4% on Tuesday.

The nearest important level of resistance of the S&P 500 index is now at around 2,690-2,710, marked by the recent level of support. The resistance level is also at 2,730-2,750. On the other hand, the nearest important level of support is at 2,650, marked by the yesterday's daily low. The next support level is at 2,600-2,620.

The broad stock market broke below its previous local low yesterday, as investors reacted to global stocks markets' decline. The S&P 500 index fell almost 10% off its late September record high, so the downward correction is still slightly smaller than January's-February's sell-off of 12%. However, there have been no confirmed positive signals so far. And we could see more downward action following breaking down below the trend line:

Daily S&P 500 index chart - SPX, Large Cap Index

Just Upward Correction?

Expectations before the opening of today's trading session are positive today, because the index futures contracts trade 0.6-1.3% above their yesterday's closing prices. The European stock market indexes have gained 0.2-1.4% so far. Investors will wait for some economic data announcements this morning: Durable Goods Orders, Trade Balance, Wholesale Inventories, Initial Claims at 8:30 a.m., Pending Home Sales at 10:00 a.m. Investors will also wait for some quarterly earnings releases. The broad stock market will likely rebound after its yesterday's sell-off. For now, it looks like another upward correction. We can see some short-term technical oversold conditions.

The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of the sell-off. The nearest important level of support is now at around 2,650-2,670, marked by an overnight consolidation. On the other hand, the resistance level is at 2,680-2,700, among others. The futures contract remains below the level of 2,700, as we can see on the 15-minute chart:

S&P 500 futures contract - S&P 500 index chart

Nasdaq Also Higher Today

The technology Nasdaq 100 futures contract follows a similar path, as it bounces off its yesterday's new medium-term low of around 6,785. The market accelerated the decline following another breakdown below the level of 7,000. It fell over 900 points off its October the 1st record high above the level of 7,700. We could see more short-term volatility. The nearest important level of resistance is now at around 6,950-7,000. On the other hand, the support level is at 6,800-6,850. The Nasdaq futures contract remains below its week-long downward trend line, as the 15-minute chart shows:

Nasdaq 100 futures contract - Nasdaq 100 index chart

Amazon Sells Off Ahead of Earnings Release, Apple Going Sideways

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached the new record high at the level of $233.47 in the early October, as it continued to act relatively strong. Then the stock retraced its rally. The support level remains at around $215. On Tuesday the stock bounced off that support level, but it came back lower yesterday. Overall, it continues to trade within a two-month-long consolidation:

Daily Apple, Inc. chart - AAPL

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It fell below its previous local low yesterday, following another breakdown below the price of $1,700. So, the stock is relatively very weak ahead of its today's after-hours quarterly earnings release. We can see some clear short-term technical oversold conditions, but will the downtrend reverse? There have been no confirmed positive signals so far:

Daily Amazon.com, Inc. chart - AMZN

Dow Jones Breaks Below 25,000

The Dow Jones Industrial Average reached its new all-time high at the level of 26,951.81 on October the 3rd. Then the blue-chip stocks' gauge broke below its medium-term upward trend lines and the support level of around 26,000. It quickly continued towards the 25,000 mark. There we saw a consolidation, but the index broke lower. The nearest important level of support is at around 24,000-24,250, marked by the medium-term local low:

Daily DJIA index chart - DJIA, Blue-Chip Index

The S&P 500 index sold off below the level of 2,700 yesterday, as investors' sentiment worsened again. Will the decline continue? The market trades almost 10% below its late September record high. So it is a very strong medium-term downward correction. There have been no confirmed positive signals so far. However, we can see some clear short-term oversold conditions.

Concluding, the S&P 500 index will probably open higher today. For now, it looks like a dead-cat-bounce upward correction. We could see more volatile fluctuations. Investors will wait for some major quarterly corporate earnings releases.

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Thank you.

Paul Rejczak
Stock trading Strategist
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