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Dow Jones Crumbles on Wall Street. ASX 200 and Hang Seng Index Risk Following Lower

Dow Jones Crumbles on Wall Street. ASX 200 and Hang Seng Index Risk Following Lower

Daniel Dubrovsky, Strategist

Dow Jones, ASX 200, Hang Seng, Risk Aversion, Technical Analysis – Asia Pacific Indices Briefing

  • Volatility roiled Wall Street to start new week as Dow Jones sank
  • Worst weekly consecutive losses since 2002 could be in the cards
  • ASX 200 and Hang Seng Index appear vulnerable for APAC trade

Tuesday’s Wall Street Trading Session Recap

Market volatility roiled Wall Street to start off the new trading week, posing a threat to the incoming Asia-Pacific session. All three major benchmark stock indices closed in the red, with futures tracking the Dow Jones, S&P 500 and Nasdaq 100 sinking -1.98%, -3.2% and -3.95% respectively. If all 3 of them end this Friday lower, this will be some of the worst consecutive weekly declines since 2002.

There were few escape paths in the market. In the table below, the 3 worst-performing sectors within the S&P 500 were energy (-8.3%), real estate (-4.62%) and consumer discretionary (-4.26%). Specific economic events that may have driven the sharp dive were notably absent. Some newswires were citing a higher-than-previous survey of inflation expectations released by the New York Federal Reserve.

Likely, traders are continuing to face a difficult fundamental environment for risk assets. The Fed is just about to begin unwinding its almost USD 9 trillion balance sheet and inflation continues to run around 40-year highs. Meanwhile, China’s economy is slowing amid a strict zero-Covid lockdown strategy that risks exacerbating global supply chains. Traders are also bracing for this week’s latest US inflation report.

S&P 500 Sector Breakdown 5/9/2022

Dow Jones Crumbles on Wall Street. ASX 200 and Hang Seng Index Risk Following Lower

Data Source: Bloomberg

Dow Jones Technical Analysis

On the daily chart, Dow Jones futures have plunged into the critical 32521 – 31951 support zone. This marks the lowest close since March 2021 and is just shy of a 13% contraction from the December record high. A confirmatory daily close lower could open the door to extending losses towards lows from March 2021. A turn higher places the focus on a near-term falling trendline from late April.

Dow Jones Daily Chart

Dow Jones Crumbles on Wall Street. ASX 200 and Hang Seng Index Risk Following Lower

Chart Created in TradingView

Tuesday’s Asia Pacific Trading Session

The Tuesday Asia-Pacific economic docket is fairly light, placing the focus for traders on market sentiment. The Volatility seen from the Wall Street session risks permeating over, placing regional indices, such as Australia’s ASX 200 and Hong Kong’s Hang Seng Index, at risk. Government bond yields have generally been rising with inflation expectations. Risk aversion could send bond prices higher as yields decline.

ASX 200 Technical Analysis

The ASX 200 has been on an aggressive decline since late April, with the latest close bringing prices down to lows from March. The index also took out a rising trendline from late January, opening the door to extending losses. Clearing immediate support, the 100% Fibonacci extension at 7007, exposes the 6747 – 6894 zone below.

ASX 200 Daily Chart

Dow Jones Crumbles on Wall Street. ASX 200 and Hang Seng Index Risk Following Lower

Chart Created in TradingView

Hang Seng Technical Analysis

The Hang Seng Index is now back to the April low, which held as support at 19625 over the past 24 hours. A daily close under this price opens the door to revisiting the March low, which is also closely aligned with the 2016 bottom. In the event of a turn higher instead, keep a close eye on the falling trendline from February. It could reinstate the downside focus.

Hang Seng Futures Daily Chart

Dow Jones Crumbles on Wall Street. ASX 200 and Hang Seng Index Risk Following Lower

Chart Created in TradingView

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

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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