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Stocks Hit as Evergrande Risk Begins to Spread


Talking Points:

  • The week is starting with a risk off move as worries around Evergrande continue to spread.
  • The Fed has a rate decision on Wednesday which means that they’re in a blackout period now, preventing the possibility of Fed-speak to perk markets up until we hear the rate decision later this week.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Risk can happen fast, and that’s what’s pushing prices to start this week as from Evergrande has continued to spread. I had looked into the matter last week, noting that equity markets had seemingly ignored this risk, for the most part up to that point. While China, Japan, South Korea and Taiwan were all on holiday today, developments have continued to evolve around the ongoing situation with the insolvent property developer, Evergrande.

The domino effect started in Hong Kong markets on the weekly open with the Hang Seng taking a hit. That pain then began to spread globally, with stocks in Europe selling off and US issues were unable to escape the pain.

At this point, US equity futures are sitting on lows ahead of the 9:30 AM ET open and the Federal Reserve waits in the wings for what’s expected to be a highly-watched rate decision on Wednesday. The bank may have yet another reason to delay any possible plans to announce tapering, at this point, should the Evergrande situation continue to evolve.

S&P 500

The S&P 500 has traded down to a fresh monthly low, testing support around the August 19th swing low. I had noted last week that the S&P 500 could technically put in a 38.2% retracement, which would entail a total hit of -19.84%, with the bullish trend still remaining in workable order. If we round that 19.84% up to 20, well then technically the index would be in a bear market and still in a bullish trend.

At this point, we’re less than 5% off of the highs and the Fed is on the docket for Wednesday. It’s not all doom and gloom right now.

To learn more about the rising wedge pattern on the below chart, check out DailyFX Education

S&P 500 Daily Price Chart

S&P 500 Daily Price Chart

Chart prepared by James Stanley; S&P 500 on Tradingview

Nasdaq 100: The Big Level is 15k

The Nasdaq is similarly pulling back and like the S&P 500 above, we remain less than 5% off of all-time-highs, as of this writing.

The big level to follow here is the 15k psychological level, which functioned as resistance on the way up but, to date, hasn’t shown much for higher-low support yet. A hold of support there can keep the door open for buy-the-dip scenarios ahead of the Fed.

Nasdaq 100 Daily Price Chart

Nasdaq 100 Daily Price Chart

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX



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