Current Declines Will Target Below 40,000

Summary:

The major U.S. stock indices declined on Thursday, and following pressure in the latter part of the previous trading session, the market may experience further downturns.

SELL US30

Close Time

CLOSED

42336.92

Entry Price

39689.00

43300.00

49640.95 +261.50 +0.53%

9630.8

Pips

Loss

39689.00

43301.97

Exit Price

42336.92

Entry Price

43300.00

Fundamentals

U.S. stocks experienced a significant decline on Thursday, continuing to drop throughout the day. The Nasdaq index saw a particularly notable decrease, driven by a sell-off in technology stocks. By the close of trading, all major indices had further declined, closing near their lowest points of the day.

The Nasdaq index fell by 512 points, a decrease of 2.8%, closing at 18,095 points; the S&P 500 index dropped by 108 points, down 1.9%, to 5,705 points; and the Dow Jones Industrial Average (DJIA) decreased by 378 points, a decline of 0.9%, ending at 41,763 points.

The sell-off on Wall Street was triggered by negative reactions to earnings reports from tech giants Microsoft and Meta Platforms.

Microsoft reported first-quarter results that exceeded expectations; however, the revenue forecast for the current quarter was disappointing, leading to a sharp decline in its stock price by 6.0%.

Meta, the parent company of Facebook, experienced a decline of 4.1% following the release of its third-quarter earnings, which exceeded expectations, although user growth fell short. Meta also projected an increase in capital expenditures due to investments in artificial intelligence.

Investors reacted to the closely watched consumer price inflation data, which aligned closely with market expectations.

The U.S. Department of Commerce reported that the Personal Consumption Expenditures (PCE) price index rose by 0.2% in September, with the annual growth rate slowing to 2.1%, both figures meeting expectations. However, the annual growth rate of the core PCE price index remained unchanged from the previous month at 2.7%. The market had previously anticipated that this index's annual growth rate would decelerate to 2.6%.

MARKET WATCH: Core price growth has slightly exceeded expectations, potentially intensifying concerns that the Federal Reserve will slow the pace of interest rate cuts more than anticipated. Meanwhile, the core PCE has increased by 2.7% YoY, indicating that the Fed still faces significant challenges on the final stretch of its journey to curb inflation and declare victory.

Although a 25 basis point rate cut is anticipated at the next Fed meeting, the Fed must acknowledge that, due to robust consumer spending, wage increases resulting from a series of successful strikes, and a strong labor market, they will need to adopt a 'gradual' approach to lowering rates until the Federal Open Market Committee is confident that inflation will not continue to rise.

A report from the U.S. Department of Labor revealed that initial claims for unemployment benefits unexpectedly fell to a five-month low last week, which may have further fueled concerns about a deceleration in the pace of rate cuts.

Current Declines Will Target Below 40,000_1

Technical Analysis

On October 19, after the DJIA reached a historic high of 43,322, confidence in the potential for further record-breaking gains was bolstered. However, subsequent trading has shown a downward trend, with the DJIA falling below the critical upward support level of 41,830 yesterday, forming a "head and shoulders" pattern in the 4H timeframe. It is anticipated that after a brief rebound, the DJIA will experience a significant decline in future trading sessions.

From the perspective of trend indicators, the current bullish market's rebound momentum appears weak, with the 20-day SMA likely to present strong resistance during the continuation of the bullish rebound. Following this, bears may regain control and push prices toward the 50-day SMA. If this level is breached, the downward trend could continue, approaching the 100-day SMA range of 40,890.

Indeed, this level is unlikely to mark the end of the current significant decline; based on the development of the "head and shoulders" pattern, the ultimate target for bears lies below 40,000.

Overall, while a short-term rebound in the DJIA remains possible, the path of least resistance appears to be downward.

Trading Recommendations

Trading Direction: Sell

Entry Price: 42350

Target Price: 39689

Stop Loss: 43300

Deadline: November 16, 2024 23:55:00

Support: 41710, 41453, 40996

Resistance: 42622, 43055, 43320

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