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The S&P 500 Index fell again on Wednesday, continuing it’s recent downward slide that has wiped out all of the year’s gains so far.
The Index dropped by -0.19% on the day as a surging US dollar puts pressure on corporate profits and as traders priced in sooner than expected rate hikes from the Federal Reserve.
The greenback continued to soar on Wednesday, hitting its highest levels since the 2003 invasion in Iraq. The dollar now trades at a 12-year high against the euro while USDJPY has also hit a 7 ½ year high. While the stronger dollar might be good news for exporters, it’s bearish on balance for US corporations. A report from Goldman Sachs yesterday said that a 10% rise in the dollar could lead to a drop in earnings for US corporates by around $3 a share.
Worst performers
Consumer goods and technology companies were some of the hardest hit on Wednesday with Apple shares falling to their lowest levels in a month. Meanwhile CISCO systems dropped for the sixth time in seven days and EMC Corp plunged -4.6%.
Chicken producers Pilgrim’s Pride and Tyson Foods Inc. also fell sharply after reports of a case of bird flu in Arkansas, with shares in the latter diving -5.6%.
There was better news in the financial space, however. Citigroup and Bank of America both rebounded by at least 2% after financial shares had their worst daily performance in 11 months on Tuesday.
Technicals & Outlook
The S&P 500 spent Wednesday’s session trading between the pivot and the first support and didn’t give technical traders much opportunity for profit after the previous day’s volatile moves left the technical levels stretched out.
Looking ahead, we note likely support around 2,040 and are now bullish on both the short-term and medium-term horizons. The pattern is an ending diagonal [1,2,3,4,5], the latest decline, wave 4, overlapped the top of wave 1. A near 61.8% retracement of wave 3 means wave 4 is nearing an end.
We are bullish over the next few days and are looking to buy in the 2036-2060 range with a move up to 2,090. Over the next few weeks, we are looking for a move up to 2,130 to complete wave 5.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
