The US equity benchmark indices, the Dow Jones Industrial Average and the S&P 500 were knocked down badly by over 2 per cent on Monday. Indeed, the Nasdaq Composite index tumbled by about 4 per cent. The overnight sell-off in the US has rattled the Asian equity markets today.
Japan’s Nikkei 225 (36,552) is down 1.3 per cent, Hong Kong’s Hang Seng (23,562) is down 0.93 per cent and China’s Shanghai Composite (3,350) index is down about 0.5 per cent.
India’s Sensex (73,950, down 0.2 per cent) and Nifty 50 (22,436, down 0.1 per cent) seem to be managing to stay afloat under this circumstance. The indices are attempting to bounce back from their intraday lows now. It will have to be seen if they can sustain the bounce or not.
US market – what next?
On the charts, the picture is very weak for the US markets, especially for the Dow Jones and the S&P 500. Nasdaq Composite looks relatively better among the three with limited downside from current levels. Here is our technical analysis on the US benchmark indices to see where they are headed from here.
Dow Jones: Bearish with a double-top
Chart Source: TradingView
The price action in the Dow Jones (41,911.71) since November last year indicates a clear double-top formation on the chart. This is a reversal pattern. The neckline of this pattern is at 42,050 which is just been broken on Monday. So, a further fall from here will confirm this pattern. It will be very bearish for the Dow and can intensify the sell-off.
In that case, there is a danger of the Dow Jones tumbling to 40,000 and even 39,000-38,850 in the coming months. So, there is room available for another 5 to 7 per cent fall on the Dow Jones from current levels.
Intermediate support is at 41,300 from where a short-lived corrective bounce is possible.
S&P 500: More room to fall
Chart Source: TradingView
The S&P 500 (5,615) had failed in its several attempts to breach the psychological 6,000 mark since December last year. The strong fall since last week confirms that a top is in place. S&P 500 index can fall to 5,450, another 3 per cent fall from here. A bounce thereafter can take the index up to 5,600 or even higher.
But if the index breaks below 5,450, there is a danger of it tumbling towards 5,200-5,100 in the coming months. That will a fall of about 7 to 9 per cent from current levels.
NASDAQ Composite: Relatively better placed
Chart Source: TradingView
The NASDAQ Composite (17,468) index seems to have a limited downside compared to the Dow Jones and S&P 500.
Immediate support is 16,900. Below that 16,340 – the 38.2 per cent Fibonacci retracement level, is the next important support. The downside is limited to either 16,900 itself or 16,340. That will be about 3 to 6 per cent from the current levels.
The impact
The above analysis indicates that the US markets are likely to get beaten down more. So, that in turn can keep the global equity markets under pressure. So, will the Sensex and Nifty 50 fall more along with the US markets? Could be yes. But there are chances to see a slow pace of fall in our markets from current levels.
Because, there has been a divergence between the Indian and the US benchmark indices for some time. Sensex and Nifty 50 have been coming down since October last year. The US markets on the other hand continued to sustain higher and started to fall fromFebruary this year. So, the Indian markets can remain at lower levels, but stable and may be in a range for some time when the US markets continue to fall. We will have to wait and watch.
