It looks like we have a broad liquidation event on our hands – stocks selling off in lockstep with the S&P 500 through its support levels, AI basket in correction territory (-10%), European and Asian equity markets falling as economic worries and macro headwinds develop, crypto markets in freefall and gold – the ultimate haven - tested the 50% retracement at the $4k round number again, finding some support at this level. Silver is testing neckline support on its double-top at the 200-day.
Zeitgeist: AI stress to the fore...Fed may not cut in Dec...crypto market bleeding across risk sentiment after damaging liquidation event in October...govt reopening in the US. It’s all coming to the fore this week as Nvidia earnings create a bit of a cliff edge for sentiment towards AI in light of recent selling, while September payrolls data is finally released to set the Fed wheels in motion. US factory orders are due today. Weekly jobless claims hit 232k in the week ending October 18th, according to delayed data released this morning.
Weakness in equity markets continues this morning with all major European indices lower following a weak session in Asia - Tokyo -3%, Hong Kong -2% and Seoul -3.5%. The Stoxx 600 shed -1%, Financials and Industrials the worst performers hit by worries on economic sentiment. Miners dropped as aluminium and copper metal prices slip. The FTSE 100 declined 1% in early trade, while losses for Paris and Frankfurt were heavier. Nothing will be immune if the AI bubble goes pop.
The Dow closed down by more than 550pts, or 1.2%, weighed by further losses in AI, chips and tech. The S&P 500 and Nasdaq each decline about 0.9%. Everything was down just about, bar Google which rallied 3% on the Buffett stake. The S&P 500 has slipped out of the channel, closed below its 50-day simple moving average and futures are taking down the 61.8% retracement of the rally post 10 October around 6,660 but bulls have mounted a defence of this level and we look to see if this holds or not today. 6,600 is the next level.
I looked at some technical levels on SPX last week.
Nvidia fell another 2% ahead of its earnings on Wednesday, a key moment for sentiment in the market regards the AI trade. If that fails then we could be looking around for the September payrolls report on Thursday to provide cover for more Fed rate cuts as the cycle turns. We could see a more dovish Fed suddenly if AI trade blows up + labour market cools + inflation remains onside...favour small caps in this environment.
Fed governor Waller – one of the main doves on the FOMC – backed a December rate cut, saying he’s concerned about the labour market. The market has cooled on the idea that a December rate cut is a slam dunk, with pricing coming off sharply in the last week or so. The lack of data has left traders blind but Thursday sees the September jobs report released, which may significantly support a rate cut, which would fuel risk appetite.
MS sounds bullish at least, raising its 2026 S&P 500 price target to 7,800 driven by strong earnings growth. Valuation stays supported as the rolling recovery leads to broadening in leadership...raises small caps to OW relative to large caps; upgrades Consumer Discretionary Goods and Healthcare to OW.
Japanese stocks fell as the Nikkei dropped over 3% amid concerns over tech valuations, rising bond yields, and Tokyo-Beijing tensions. SoftBank fell 7.6%. 40-year bond yields rose 8 basis points to 3.68%..bond yields in Japan are now at multidecade highs and EURJPY at its highest ever since the introduction of the euro. FinMin Katayama again trying to jawbone the yen higher with warnings of "extremely one-sided and rapid movements in the currency market" after USDJPY broke through 155.
Bitcoin slumped to fresh 6-month lows below the $90k mark and has taken out its 200-day line. Looks like liquidity has dried up post the October 10th blowup and damage is taking a long time to repair. Even some long-term holders are selling and outflows from ETFs was huge last week... So far it looks like we may be at an important stage in the pull back as the ~28% decline is consistent with the ~28% declines seen in the two previous large-scale reversals in 2024 and earlier this year. Both times it took about 6 months from the cycle peak to make a fresh all-time high, which might suggest further choppiness to come over the next 3-4 months. The next key support is around $83,500, the 38.2% retracement of the rally since 2022 to the recent peak. If we get some softness in equity markets on renewed AI worries, macro headwinds, Fed hawkishness we could see this move and even $70k tested before enough of a shakeout has cleared enough room for new entrants. On the upside, we look first to recapture the key $100k level before a move back to the previous cycle high around the $106k before bulls regain control.
Chart: US500 moves outside channel and below its 50-day line
