U.S. Indices Show Signs Of Fatigue

Published 02/12/2021, 06:18 AM
Updated 03/21/2024, 07:45 AM
US500
-
STOXX
-

Market activity has declined markedly and changed little with China leaving for the Lunar New Year celebrations. But we should not be discouraged by the US and European indices' performance, where the growth impulse seems exhausted. At the very least, it's a signal that markets are about to stall near their current levels. However, it's often a harbinger of a notable correction. Much more profound than we saw last month.
S&P500
As the key US indices rose to new all-time highs, trading volumes fell steadily. Volumes had increased in the previous two days, but only thanks to intraday corrections. This dynamic only confirms the observation that many wish to take short-term profits at the first sign of a trend reversal.

Another divergence can be seen between US stock indices daily charts and the Relative Strength Index. Higher highs for prices correspond to lower highs for RSI, further reflecting the exhaustion of growth momentum.
Dow Jones Industrial Average
We saw the same thing a year ago: before the slippage at the end of January, the price was going up, but volumes were falling. The epic fall started at the end of February. It would be too pessimistic to say that the same deep downturn is coming, but a good correction is clearly in sight.
 
If we are accurate, and correctional sentiment increases, the momentum near the 50-day moving average will increase traders' attention. It is a crucial signal line for the short-term trend, as a drop below it often separates a small pullback from a deep correction. A strong break-down under the 50-DMA would almost immediately turn the 200-DMA into the next target for bears.
Nasdaq100
However, investors should keep in mind that despite very tangible chances for a short-term correction, the fundamentals (printing press and pandemic easing) are working for the market. So it would be too hasty to bet on a multi-year bear market.
 
For such an ultra-bearish scenario, not only does one have to wait for a fall below the 200-day average, which is 10-15% below current levels, but governments and central bankers have to remain blind-sighted during such market volatility.

The FxPro Analyst Team

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.