Chart of the day - US30 (26.09.2023)

Investor sentiment in the US stock market began to seriously weaken in the second half of the third quarter of the year. Some sort of echo of the Fed's hawkish dot-plot and Powell's conference are rising bond yields, which climbed 10-year treasuries climbed to new 16-year highs today, reaching 4.54%. From a long-term perspective, current yields are near the mean which could potentially indicate more room for further increases if nothing happens in the economy that prompts the Fed to quickly review its hawkish policies. The stock market, including the DJIIA (US30) is losing ground at a time when the risk-free rate is rising and the outlook for economic growth appears uncertain and leading institutions like S&P and the Conference Board agree on a slowdown in y/y US GDP growth in 2024. Today volatility in US stock market and US30 may rise after Confrence Board reading, Richmond Fed index and US new home sales data (15:00 BST).

The stock market appears to be moving in the shadow of a significant amount of risk aversion-building news, from recurring problems in China's real estate market, where Evergrande has defaulted, to the prospect of another political crisis caused by controversy over the federal budget. While a U.S. government shutdown is not entirely new and has occurred 18 times up to 1977 - it would potentially negatively impact economic growth and delay the release of macroeconomic data (estimates put it at a 0.15% drop i GDP for each week of duration). Moody's has also indicated that such a turn of events could be associated with a downgrade of the US credit rating - feeding the arguments for why Fitch downgraded the US to AA+. 

Looking at the chart of the US30, on the D1 interval, we see that the price has fallen' dangerously close' to' the SMA200 level (red line), which runs around 33,932 points. Moreover, the bears managed to break below the SMA100 (black line) for the first time since May. It is worth noting that in May the decline was defended around the aforementioned SMA200, also during the period of weakness in February and March 2023 the bulls managed to defend against a larger decline below the SMA200. However, if the bulls fail to rebound from current levels, a test of the 23.6 Fibonacci retracement of the March 2020 upward wave at 32,400 points where the trend line also runs may be a likely scenario. Historically, the behavior of the price around the SMA100 and SMA200 has often indicated 'buying opportunities' or, conversely - periods of weakness preceding broader downward reactions.

Source: xStation5