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Dow Jones and Nasdaq 100 Fall as Treasury Yields Rally, Hang Seng Index May Be Vulnerable

Dow Jones and Nasdaq 100 Fall as Treasury Yields Rally, Hang Seng Index May Be Vulnerable

Daniel Dubrovsky, Contributing Senior Strategist

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Dow Jones, Nasdaq, Treasury Yields, Hang Seng, China Lockdowns – Asia Pacific Indices Briefing

  • Dow Jones, S&P 500 and Nasdaq 100 fall as Treasury yields keep rising
  • Nasdaq/Dow ratio sits near one-month low amid more hawkish Fed
  • Chinese lockdown woes weighing on energy stocks and the Hang Seng
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Monday’s Wall Street Trading Session Recap

Market sentiment was reeling on Wall Street at the end of Monday’s session. Dow Jones, S&P 500 and Nasdaq 100 futures declined 1.14%, 1.66% and 2.28% respectively. This is as the VIX volatility index, also known as the market’s preferred ‘fear gauge’, soared 15% to close at its highest in almost one month. Risk aversion continued in the aftermath of an increasingly hawkish Federal Reserve.

There were no sectors within the S&P 500 that closed in the green. The 3 worst-performing ones were energy (-3.11%), information technology (-2.60%) and health care (-1.97%). Losses in energy stocks followed weakness in WTI crude oil prices, where the futures contract fell 2.65%. Concerns over China’s worst Covid-induced lockdown on record is dampening demand from a key consumer of oil.

The 10-year Treasury yield gained 2.9% as the Nasdaq/Dow ratio sank to the lowest in almost one month. Chicago Fed President Charles Evans spoke today, noting that the central bank ‘has to be on top of prices and reposition ourselves’. At this rate, a 50-basis point hike seems very likely at the next meeting in May, with quantitative tightening just around the corner as well.

Dow Jones Technical Analysis

On the four-hour chart, Dow Jones futures appear to be carving out a bearish Head and Shoulders chart formation. After forming the right shoulder, prices are testing the neckline around 34263. Confirming a breakout under the latter may open the door to reversing the near-term uptrend seen during the second half of March. Otherwise, pushing above 34820 opens the door to revisiting 35281.

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Dow Jones 4-Hour Chart

Nasdaq 100 4-Hour Chart

Chart Created in TradingView

Tuesday’s Asia Pacific Trading Session

With that in mind, the rather pessimistic day on Wall Street risks being a precursor to follow-through during Tuesday’s Asia-Pacific session. The economic docket is also fairly light, placing the focus on sentiment. Hong Kong’s Hang Seng Index remains an interesting one to watch given lockdowns in China. According to Bloomberg, China approved the first batch of new video game licenses since July overnight.

That has brought hopes of a turnaround in the government’s views on crackdowns that have been weighing on local indices since February 2021. Unfortunately, this is coming at a time when China’s economy is slowing and global monetary tightening is permeating throughout financial markets. The latter could still weigh on the Hang Seng, especially the tech index (HST).

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Hang Seng Technical Analysis

Hang Seng Index futures appear to have broken under a Rising Wedge chart formation. This could hint at extending losses back towards the March low at 18134. Immediate support is the 23.6% Fibonacci extension at 20992 before the 38.2% level comes into focus at 19954. Overturning the Rising Wedge may see prices retest the current April high at 22670.

Hang Seng Index Futures 4-Hour Chart

Hang Seng Index Futures 4-Hour Chart

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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