S&P 500 Tests Support At 4000 As Risk Appetite Declines

Key Insights

• The better-than-expected ISM Services PMI report triggered a sell-off in the stock market. 
• Higher Treasury yields and stronger dollar served as the key catalyst for today’s move. 
• A successful test of the support at 4000 will push S&P 500 towards the 20 EMA at 3975.

Stocks Are Under Strong Pressure As ISM Services PMI Report Exceeded Analyst Expectations

S&P 500 declined towards the 4000 level as traders’ risk appetite declined after the release of the better-than-expected ISM Services PMI report. The surprising report pushed the yield of 10-year Treasuries towards the 3.60% level, which was bearish for stocks.

Today’s pullback was led by energy stocks, which moved lower due to the sell-off in the oil markets. Halliburton, Marathon Petroleum, and Marathon Oil were among the biggest losers in the energy segment today.

Tech stocks, which are sensitive to changes in yields, have also found themselves under significant pressure today. The tech-heavy NASDAQ Composite was down by more than 2%.

Tesla was down by 6% after reports indicated that the company would cut production in China. Tesla denied the reports, but the stock remained under significant pressure.

From a big picture point of view, the strong PMI report triggered an additional wave of profit taking after the strong rally, which pushed S&P 500 from 3500 to 4100.

On Friday, the pullback was quickly bought by traders who were willing to bet that the strong rebound would continue. However, the ISM Services PMI report put additional pressure on stocks, and there is no sign of buying activity in today’s trading session.

S&P 500 Tests Support At 4000

In case S&P 500 manages to settle below the 4000 level, it will move towards the support at the 20 EMA at 3975. A move below the 20 EMA will push S&P 500 towards the support at 3960. If S&P 500 declines below this level, it will head towards the next support level, which is located at 3940.

On the upside, the previous support at 4015 will serve as the first resistance level for S&P 500. In case S&P 500 climbs back above this level, it will head towards the resistance at 4040. A successful test of the resistance at 4040 will open the way to the test of the resistance at 4070.

For a look at all of today’s economic events, check out our economic calendar.