The Dow Jones collapses on Wall Street. ASX 200 and Hang Seng Index Risk Tracks Down

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

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

Recap of Tuesday’s trading session on Wall Street

Market volatility troubled Wall Street to kick off the new trading week, posing a threat to the upcoming Asia-Pacific session. All three major benchmark equity indices closed in the red, with futures following the Dow Jones, S&P 500 and Nasdaq 100 falling -1.98%, -3.2% and -3.95% respectively. If all 3 end this Friday lower, it will be one of worst consecutive weekly decline since 2002.

There were few escape routes in the market. In the chart below, the 3 worst performing sectors in the S&P 500 are Energy (-8.3%), Real Estate (-4.62%) and Consumer Discretionary (-4.26%). The specific economic events that could have led to the sharp drop were noticeably absent. Some news wires cite a higher than previous survey of inflation expectations released by the New York Federal Reserve.

Traders are likely to continue to face a challenging fundamental environment for risk assets. The Fed is about to start unwinding its almost $9 trillion balance sheet and inflation continues to hover around 40-year highs. Meanwhile, China’s economy is slowing under a strict zero-Covid lockdown strategy that risks exacerbating global supply chains. Traders are also bracing for the latest US inflation report this week.

Sector allocation of the S&P 500 05/09/2022

Data source: Bloomberg

Dow Jones technical analysis

On the daily chart, Dow Jones futures dipped to the critical support zone of 32521 to 31951. This is the lowest close since March 2021 and is just short of a 13% contraction. compared to the December record. A confirmatory daily close decline could open the door for an extension of losses to the lows from March 2021. A turn to the upside places emphasis on a short-term declining trendline from end april.

Dow Jones Daily Chart

The Dow Jones collapses on Wall Street.  ASX 200 and Hang Seng Index Risk Tracks Down

Chart created in TradingView

Tuesday Asia-Pacific Trading Session

Tuesday’s Asia-Pacific economic record is fairly light, putting traders in the center of market concern. The volatility seen during the Wall Street session is likely to seep through, putting regional indices, such as Australia’s ASX 200 and Hong Kong’s Hang Seng Index, at risk. Government bond yields have generally risen with inflation expectations. Risk aversion could push bond prices higher as yields fall.

ASX 200 Technical Analysis

The ASX 200 has been aggressively declining since late April, with the latest close taking prices back to lows from March. The index also released an uptrend line from late January, opening the door for prolonged losses. Clearing immediate support, the 100% Fibonacci extension at 7007, exposes the 6747 – 6894 zone below.

ASX 200 daily chart

The Dow Jones collapses on Wall Street.  ASX 200 and Hang Seng Index Risk Tracks Down

Chart created in TradingView

Hang Seng Technical Analysis

The Hang Seng index is now back to the April low, which has held support at 19625 for the past 24 hours. A daily close below this price opens the door for a return to the March low, which is also closely aligned with the 2016 low. In case of an upside turn, keep a close eye on the downtrend line instead. from February. This could restore attention to the downside.

Hang Seng Futures Daily Chart

The Dow Jones collapses on Wall Street.  ASX 200 and Hang Seng Index Risk Tracks Down

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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