US stock markets to face serious test next week

Like the rest of the global markets, the Malaysian stock market was severely battered yesterday (July 14). The CI dropped 12.92 points to close at 913.63. Losers outnumbered gainers 827 to 90. Volume stood at 1.16 billion shares traded.

Many would attribute the current round of equity market sell-off to the sharp rise in the price of crude oil and the big mess in the Middle East. But, the signs of a fresh sell-off has been there for the past 1 or 2 weeks and most technical analysts had been expecting the market to re-test its June low. Now, we know that this "test of the low" has claimed its first "casualty" i.e. Nasdaq. Nasdaq closed at a new recent low of 2054.11 on last Thursday (July 13). Yesterday, it dropped a further 16.76 points to 2037.35 (see Chart 1). Not only has Nasdaq failed its test of the low, it has also broken its then-prevailing uptrend line at the 2100 levels.













Chart 1: Nasdaq's daily chart as at July 14


The other 2 main indices in the US i.e. Dow Jones Industrial Average ("DJIA") & S&P500 are poised to do their respective test of the low (10650 for DJIA & 1220 for S&P500) as well as to test their uptrend line supports (10400 for DJIA & 1220 for the S&P500). On Friday (July 14), the DJIA and the S&P500 closed at 10739.35 & 1236.20, respectively. The outcome of these tests would signal the direction of the US equity markets as well as many global markets (see Chart 2 & 3 below).













Chart 2: DJIA's daily chart as at July 14














Chart 3: S&P500's daily chart as at July 14