The following article was written by Ipek Ozkardeskaya, Senior Market Analyst at FCA regulated broker London Capital Group Holdings plc (LON:LCG).
Ipek Ozkardeskaya, LCG
The FBI investigations on an eventual Russian influence on the US 2016 election and the outcome are taking their toll on the US stock markets.
There are rising voices that President Donald Trump could be impeached. At this point, one could hardly imagine a worse scenario than an eventual Trump impeachment for the markets.
Even it is too early to point the latter as the base-case scenario, if Donald Trump is impeached, his massive infrastructure spending plans and the colossal tax reforms would never see the daylight.
Hence, the past six-month’s reflation rally would face severe reversal risks. If the markets were to retrace the Trump-reflation gains, this would trigger a decent ‘deflation’ squeeze.
We bring forward the key Fibonacci levels in case of a potential retracement on the Trumpflation rally.
Dow Jones breaks below the 50-day moving average
The Dow Jones rallied from $17’480 to above $21’100 following Donald Trump’s victory on November 9th election; this is roughly a 21% rise.
The index is currently down by 2.66% off the record high levels. The 50-day moving average, $20’780, which has acted as a solid support in May, has been taken out, bringing the 100-day moving average, $20’495, in traders’ focus.
The minor support to the Trumpflation rally stands at $20’394, the 23.6% retracement on November 9th to March 1st rise.
The major support stands at $19’914, the 38.2% retracement, which should distinguish between the continuation of the positive Trump trend and a mid-term bearish reversal toward the distant $19’526, the 50% retracement.
S&P500: daily MACD turns negative
The S&P500 surged from $2’030 to above $2’400, which is more than 15% increase. Similar to the Dow Jones, the 50-day moving average, $2’369, has been taken out on Wednesday drop.
The MACD (Moving Average Convergence Divergence) stepped in the negative territory, suggesting a stronger negative momentum and mounting selling pressures on the S&P500 index.
Traders watch the 100-day moving average, $2’336, and the minor $2’329 Fibonacci support, which stands for the 23.6% retracement on the Trumpflation rally.
The key support is eyed at $2’283, the major 38.2% retracement.
NASDAQ has been the biggest gainer post-Trump
The NASDAQ 100 recorded the biggest post-Trump rally, 23%, as it surged from $4’648 to $5’724. Technology stocks would equally benefit from the major Trump reforms, yet were relatively less concerned about the short-term cost structure due to new restrictions on delocalization and labour.
The NASDAQ 100 recorded its second largest daily drop under the Trump presidency, yet has not breached any key technical levels just yet.
The 50-day moving average stands at nearly 100 points lower from the Wednesday’s close, a stone’s throw above the minor 23.6% retracement, $5’470.
The key mid-term support stands at $5’313, the major 38.2% retracement.