US stocks tumbled sharply overnight and risk aversion spreads to Asia. DOW closed down -799.36 pts or -3.10% at 25027.07. S&P 500 dropped -3.24% to 2700.06 and NASDAQ lost -3.80% to 7158.83. DOW has now pared much most of the gains triggered by Fed Chair Jerome Powell’s dovish turn last week, as well as the US-China trade truce.
While the fall was deep, there was no special technical development. It’s a bit disappointing that DOW couldn’t even touch 26000 with the rebound. But after all, it’s in the corrective pattern that started from 26951.81. We’d maintain that for the near term, range is set for the consolidation and 24122.23 should hold even in case of deeper fall. For the medium term the correction from 26951.81 would likely have a test on 38.2% retracement of 15450.56 (2016 low) to 26951.81 at 22558 before completion.
Some attributed the stock market decline to yield curve inversion in the US, between 3- and 5- year yield. That’s certainly hit the nerves of investors as global treasury yields, not just the US, dropped sharply.
10 year yield closed down -0.068 at 2.924, back below 3% handle. 30 year yield also dropped -0.100 to 3.178. The technical developments are turning bad. But for the near term at least, as both are close to 55 week EMAs, we’d expect limited downside potential.