U.S Equities Move Strongly Lower, After Hitting New Record Highs Yesterday

After hitting new all-time record highs in both the NASDAQ composite and S&P 500, profit-taking and selling pressure today took all three major indexes dramatically lower. The largest drawdown today occurred in the indices that has performed the best of all three major indexes, the NASDAQ composite. After closing above 12,000 yesterday the NASDAQ composite opened at 11,859 this morning, and was at 11,458 by the close. The selling pressure in the NASDAQ composite took that index 598 points lower which is a decline of almost 5% (-4.98%).

The S&P 500 lost 3.51% in trading today, the total drawdown of 125.78 points taking that index to 3,455.06. The index that had the smallest percentage drawdown was also the index that did not trade to an all-time record high yesterday which is the Dow. The Dow Jones industrial average lost 807 points which is a net decline of -2.78%, taking that index to 28,292.73.

The catalyst for today’s dramatic selloff in U.S. equities is not crystal clear. However MarketWatch reported that Chris Zaccarelli, chief investment officer for Independence Advisor Alliance said, “In the absence of a specific catalyst, it’s easy to classify today’s swoon as profit-taking, noting that the “most-loved” parts of the market — the technology, consumer discretionary and communications services sectors — sold off the most.”

This report also cited a statement by Esty Dwek, head of global macro strategy for Natixis Investment Managers which said, “Tech stocks, and the overall market, hadn’t really had a bad day since June, so this is a healthy breather. It was never just going to be a straight line up. But the long-term structural support for technology has not changed and support for equities has not either,”.

Today’s selloff occurred in conjunction with positive economic data. New applications for unemployment benefits fell 130,000 to a seasonally adjusted 881,000. This was lower than the estimate which was looking for a seasonally adjusted number of 940,000. This data certainly suggests that although slow, a recovery has begun in the United States.

However, the most important data to be released this week will occur tomorrow when the U.S. Labor Department releases its jobs report for last month.

Lower U.S. equity pricing pressured the precious metals, and with the exception of palladium, all the precious metals sustained a wide loss in trading today. Silver had the largest percentage drawdown, which is logical due to its industrial component. Silver futures lost 2.32%, taking the most active December 2020 contract to $26.76, after factoring in today’s decline of almost $0.64.

Gold sustained the smallest percentage drawdown giving up 0.38%, with the most active December 2020 futures contract closing at $1,937.40. Our technical studies indicate that the next strong level of support in gold occurs at $1,900 per ounce, with major support at $1,847 which is the 38% Fibonacci retracement level. Major resistance for gold continues to remain $2,000 per ounce.

Wishing you as always, good trading,