Strong economic data means stock decline

US stocks decline

Yesterday, Monday 5 December, the US stock market fell.

Major indices such as S&P 500 and Nasdaq closed in negative after the recent positive days.

The reason behind the decline is that investors are worried that Fed will not slow down the interest rate hikes, following the strong data released by the Institute for Supply Management, yesterday.

The report, regarding the economic activity in the service sector, has shown an expansion of 56.5 while the forecast was 53.3.

Since the data is higher than expected, the Federal Reserve's monetary policy is not efficiently working at the moment, because the economy is still growing instead of slowing down.

S&P 500 Technical Analysis - Daily Chart

 
The S&P 500 price has been rejected at the bear market trendline, for the fourth time, on 1 December (see red circles on the chart).

The index price fell below the 200-day MA (green moving average) yesterday after it was able to hold it for 3 days.

Those are bearish signals.

The fake breakout above the 200-day MA key level was likely generated by shorts covering by investors who panicked and closed their positions.

The next support levels for bullish investors are the 21-day MA (blue moving average) at around 3980 and then the horizontal support line at around 3900.

The only option to change the current scenario to a new bullish trend would be for the price to move back above the 200-day MA and then the trendline at around 4100.

The RSI moved lower to 55, indicating a bullish trend.

Sentiment Indicator - Fear & Greed Index


The market sentiment is at 65  in the "Greed" mode which is the same exact level registered yesterday.

FedWatch Tool - FED rates probabilities

79.4% of investors are expecting the FED to increase the interest rates by 0.50% in the next meeting.

The remaining 20.6% are expecting a 0.75% rate increase.

The data show us that the number of investors expecting an increase of 0.50% is the same as the last few days.

No other options are considered at this stage.

The next FED meeting is on 14 December 2022.