US Stocks Keep Falling, Where is the Support?

If you’re wondering why the US market is bearish in recent time then read on as you’re not alone! More often than not, the market tends to think the same way and even I myself am feeling a little “lost” with regard to where the market is headed.

After a mid year rally, the bulls and bears are at it again – market bulls anticipate an end-of-year rally whereas bears believe that more weakness is on the horizon due to possible tax-loss harvesting. While there is still much speculation about the fate of the market, recent catalysts have indeed been bearish hence present-day weakness.

With so much happening of late, let’s take a breather and review some of the latest catalysts in the market along with a quick analysis of the NASDAQ.

3 Reasons why the Market is selling off

1. Higher for Longer

The strain from interest rate hikes has just started to come through and with central banks signalling that rates will likely stay higher for longer, the notion of something “breaking” remains strong.

What could break under higher-for-longer interest rates?

It is difficult to summarise the entire economic state of the US economy but very briefly, the US economy continues to show resilience despite interest rates being at 5.5%. This is about as high as interest rates were right before the 2008 economic crisis.

Ideally, with high interest rates, US policymakers hope that such rates would translate to a slowing economy. The most obvious and easily identifiable indicator of this would be an increase in unemployment. It is assumed that when more people are unemployed, it would mean that the population has less spending power which would subsequently result in lower consumer spending therefore “cooling” down the economy to some extent.

However, recent data indicates that the labor market continues to remain relatively strong with national unemployment rates coming in at 3.8% in August. This is far from the projected unemployment rate of 4.5% for the end of 2023.

As such, interest rates are to remain higher for longer and will unlikely be lowered in the near-term.

2. Government Shutdown

*Latest Update* – US Senate passed a last-minute spending bill allowing the government to stay open for the next 45 days. This may reduce short-term volatility in the market.

“I just signed a law to keep the government open for 47 days,” – Biden

Government shutdown updates (CNBC)

Every year, US policymakers come together to do their usual and this notion of a government shutdown is always threatened. A shutdown did take place in the past, hence markets always tend to be a little on edge when this “season” is around the corner.

So what?

A US government shutdown could result in (but is not limited to) some of the following repercussions,

• Some government websites would shutdown. (Parks & Museums)
• Parks would be closed.
• Visa and passport applications would go unprocessed.
• Veterans and military benefits would be delayed.
• Bankruptcy cases would be suspended.
• Some health services would be unavailable.

Whether such repercussions are essential to the continued “operation” of the US can be debated but shaking the boat adds instability to the US, therefore spilling over into markets as volatility.

At present, the topic that has caused a significant divide between Democrats and Republicans is on America’s support for Ukraine. This issue has become a point of contention and disagreement between the two parties, highlighting their differing perspectives and priorities.

While both Democrats and Republicans acknowledge the importance of supporting Ukraine, they have contrasting approaches on how to provide this support. This difference in opinion has led to heated debates and discussions among politicians from both sides.

3. Apple Inc (NASDAQ: AAP) enters correction territory.

Throughout history, any weaknesses in Apple tend to lead to mild bearishness in the market.

This is because many investors like to “hide in Apple” due to its strong fundamentals hence should Apple see a sell-off, market participants would tend to see this as a sign of severe weakness in the market and follow suit.

“It has a lot going for it in this environment: it is gigantic, offers pretty predictable growth and cash flow in an uncertain world, and it is a very high-quality company that doesn’t have much debt,” said Jack Ablin, chief investment officer at Cresset Capital. “Its fundamentals are so solid that it is basically the Treasury of the equity market.

Megacap Slump Is Testing Apple’s Safe-Haven Status

Despite the release of the recent iPhone 15, Apple has seen more bearish than bullish catalyst of late as follows,

• Decelerating growth in the App Store and respective services segments.
• Weakening demand in iPhone sales.
• Reports of a China Ban

Initial reports on 8 Sep 2023 suggest that China may ban the use of iPhones at all government-backed agencies and state companies as part of their efforts to reduce reliance on foreign technology.

“Limiting personal use of iPhones, which could access local networks and collect environmental data, aligns with the government’s commitment to bolster cybersecurity,” Chim Lee, China analyst with the Economist Intelligence Unit

Why is China banning officials and state employees from using iPhones?

The Chinese government came out to clarify (on 13 Sep 23) that they have “not instituted any formal guidance or regulation barring the use of iPhones, addressing media reports, a Ministry of Foreign Affairs spokesperson said.”.

However at this point, the damage had already been done with Apple having fallen by almost 10% during the trading week.

How are the technicals shaping out for the NASDAQ?

With some context from the factors above, let’s take a look at NASDAQ’s charts. I’ll share my current technical analysis and what I’m looking out for.

Here, I’m using QQQ as a proxy for the NASDAQ index:

• We are currently in correction territory with the price action breaking below the 50-day moving average (Blue Line).
• Interim consolidation is forming at present between $350-$360 which was also the same support range back in September 2022. (Orange Zone)
• I speculate that further retracement back to $340 (Red Zone) may be possible given current market conditions.

Where is the support for NASDAQ?

At the point of writing, the NASDAQ is testing the support of ~$340+.

If the $340 support fails to hold, the next level that you should lookout for would be where the 200-Day moving current sits at $330. (Green Line)

You should note that the $330 range is also where the previous “resistance turned support” for the NASDAQ took place hence this may be one of the strongest levels of support in terms of its price action.

How I’m navigating through this volatility

2023 for the most part was bullish therefore I continue to be a net seller of stocks. However, the recent spike in volatility seem to have reversed the trajectory of some oversold stocks hence I took the opportunity to accumulate on some long-awaited positions in September.

Here are some of my buys in September: Intel, SEA Ltd, Disney, Alibaba, Paypal.

Do let me know if you’ll like me to expand on them in the comments section below!