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Talking Points:

  • Thursday saw the Dow, S&P 500, and NASDAQ continue their October descent which has gained momentum in the past two trading sessions
  • European equites like the FTSE, DAX, FTSE MIB all felt similar pressure and traded considerably lower
  • Asian equities also took a hit, suggesting nowhere is safe as the equity rout gathers range and momentum

US equity markets took another huge hit Thursday, as they continued the aggressive sell-off which began on Wednesday. Equities have now fallen for six straight days with the S&P 500 and Dow closing lower than 2% for the second day in a row. Further, the S&P 500 trades at the lowest level since July and the Dow has lost over 1,400 points in just two days. The decline now matches that of the crash seen in February. One interesting takeaway from Thursday’s plummet was the performance of the NASDAQ and FANG.

See how our clients are positioned on different assets and currency pairs with IG Client Sentiment.

US Equity Price Chart Year-to-Date

Rout Continues as Dow Jones, S&P Plummet for Second Day

Unlike Wednesday, Thursday’s trading session saw the NASDAQ and FANG perform relatively well. Despite gapping significantly lower at the open, FANG mounted a rebound. However, the narrowed tech basket was unable to hold onto ground and slipped, closing slightly above its opening price.

FANG Price Chart Daily, Year-to-Date

Rout Continues as Dow Jones, S&P Plummet for Second Day

Read A Brief History of Trade Wars to catch up on the ongoing economic conflict and how it may weigh on markets.

It is rather surprising conviction behind the rout remains so firm. Thursday saw positive rhetoric regarding potential trade talks between the US and China cross the wires, but it did little to shift the tide. Rising interest rates, trade wars, and geopolitical tensions between Italy and the EU still seem to dominate market sentiment. Further, other markets were unable to post gains in their respective sessions and looked to the US to buck the trend in vain.

Thursday saw the FTSE 100 suffered a brutal 6-day decline. Despite positive rhetoric regarding a Brexit deal with the EU, the FTSE has slipped below its 200DMA and trend line support dating to February 2016. Thursday’s close marked the worse session for the index since June 22nd.

FTSE Price Chart Daily, Year-to-Date

Rout Continues as Dow Jones, S&P Plummet for Second Day

Similarly, the DAX followed suit. Thursday saw the index suffer a massive gap lower at the open and efforts to regain the lost ground fell short. The DAX now trades at levels last seen in early February 2017. It is also firmly below its 200DMA and has broken trend line support dating to February 2016. Looking deeper into technical, the index has formed a huge head and shoulders pattern which has firmly broken below the neckline. With that in mind, the floor may be hard to find for the German index.

DAX Price Chart Daily

Rout Continues as Dow Jones, S&P Plummet for Second Day

Arguably the most troubled of the European equity baskets is the FTSE MIB. Along with the general risk-off attitude in equity markets, Italian political issues with the EU have weighed considerably on the index. Long-term trend line support from mid-2016 has been breached and the 200DMA is roughly 3,000 points above the current trading price.

FTSE MIB Price Chart Daily, Year-to-Date

Rout Continues as Dow Jones, S&P Plummet for Second Day

In Asia, equity performance has not fared much better. The Nikkei 225 which hit the highest level since 1991 just two weeks ago, is now threatened with a reversal. Unlike the other markets, the Nikkei remains slightly above its 200DMA and long-term support.

Nikkei 225 Price Chart Daily, Year-to-Date

Rout Continues as Dow Jones, S&P Plummet for Second Day

As we look to enter Friday’s session, it is important to note the differences between the past two days of trading. Wednesday saw the sell-off steepen just before the close while Thursday was very much a mixed trading day with rallies attempted throughout. This suggests bulls are testing the waters for re-entry or bears are tiring. Still, US equities closed firmly in the red so bulls looking to takeover remain unconvinced.

Check out our Economic Calendar for important data releases and market related events.

The economic calendar for Friday data is rather light with the exception US import and export prices. With that in mind, any data released is highly unlikely to halt the sell-off that gripped markets the past few days.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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