Nasdaq Index: US Stocks Drop as Oil Rally and Fed Fuel Technical Breakdowns

Stocks Stabilize After an Early Plunge but the Damage Is Done

The major U.S. equity indexes are down late Thursday, but stabilizing most of the session, following an early session plunge. Traders are monitoring oil prices today and evaluating the situation in the Middle East, where the war between the United States and Iran appears to be escalating with some investors already positioning for a prolonged ordeal.

Higher oil prices for longer along with higher interest rates for longer are the two themes driving the price action after the Fed implied on Wednesday that it’s probably down to just one interest cut this year and it’s likely going to be in December.

The Charts Are Taking a Beating

Technical damage is also being inflicted on the charts with the S&P 500 Index below its 200-day moving average for the first time since May 23 and the Russell 2000 Index dropping into correction territory after falling more than 20% from its 52-week high. The Dow Jones Industrial Average is also approaching correction territory, currently down 9.2% from its all-time high.

The Nasdaq Composite Index (IXIC) is down sharply on Thursday after posting a gap lower opening at the start of cash market trading. It too is below the 200-day moving average at 22237.14 and is currently testing a 61.8% of a long-term range at 21881.82. This technical level could be the trigger point for an acceleration to the downside with some traders already eyeing the August 25 main bottom at 20560.17.

The S&P 500 Index (SPX) broke through its 200-day MA at 6618.94, which is new resistance. It is currently in a position to retreat into a long-term retracement zone at 6566.52 to 6483.01. Earlier in the session, it probed the zone at 6557.82, attracting enough buying to fuel a technical bounce. But going into the close, it remains vulnerable to further downside action.

Investors Are Accepting the Worst and Moving On

Aside from oil prices, which are controlling most of the intraday price action, investors are showing some relief to the clarity the Fed gave them late Wednesday although the news was bearish. Yesterday, the Fed essentially said there is a lot of uncertainty and the war is a problem. I’m sure the stock market knew this, but the price action was showing it. Now that the Fed has said its piece, investors appeared to be willing to accept the worst, which is inflation is coming but multiple rate cuts aren’t.

Micron Drags Nasdaq Lower Despite a Blowout Quarter

As far as Nasdaq stocks are concerned, Micron is the leader to the downside, dropping nearly 7%, even though it reported a blowout quarter less than 24 hours ago. Other memory stocks including Seagate Technology, Western Digital and Sandisk, all fell in sympathy.

More Information in our Economic Calendar.