The conflict in the Middle East continues to captivate markets and risk assets stumbled in trading yesterday. However, it could've been a lot worse but for a bounce in Wall Street after the much weaker open. The S&P 500 fell by 2.5% at one point in the opening hour before dip buyers stepped in to salvage proceedings, clocking in a close of being down by just 0.9%.
The closing level is still the lowest one in a month but more notably, we're also seeing it hold below a key technical level on the charts. Amid the selling pressures and anxiety, this could mark the first firm break below the 100-day moving average (red line) since May last year.
That's keeping investors in a relatively nervous spot as we approach the midway point on the week. That being said, there is perhaps some good news to take in from the US-Iran conflict. And that could help turn things around in a jiffy if market sentiment starts to pick up more meaningfully.
For one, the US is trying to guarantee that there will be smoother passage along the Strait of Hormuz. And that is arguably the biggest development, as it does impact oil prices and the broader market mood with regards to things like inflation fears.
Adding to that, is Iran also starting to look more incapacitated by the day? Adam makes a good point here about their retaliatory tactics and the subtle point on the number of missile launches. The only caveat is that the world might be underestimating Iran here but we can only wait to see on that I guess.
Circling back to US stocks, the more nervous market mood will keep things on edge still for the next few days. But as a reminder, the social media revolution has birthed this echo chamber that tends to desensitise the same story and information in just a matter of days - not even weeks. Just think back to when the whole Russia-Ukraine conflict started and look how everyone is looking at that now.
So in time, this will also come to pass. And in the case of markets, money flows tend to move on much more quickly unless there are real economic consequences. In that lieu, the Strait of Hormuz situation is the one that matters most.
In terms of the technicals, there is a chink in the armor now when viewing the S&P 500. I would argue it's not as clear as saying that this is the start of a strong correction lower. However, there is an opportunity for sellers to step in and take their shot.
But at the end of the day, it all hinges on tech shares more than anything else. The Nasdaq still shows that it is not falling off a cliff just yet, with key levels still in play:
The index has been struggling below its 100-day moving average (red line) since February. However, dip buyers have been hanging in there in not letting price action sink further towards really testing the November low or the 200-day moving average (blue line) just yet.
As such, those two levels will be the key line in the sand in sizing up big tech sentiment in Wall Street. In essence, that's the floor to the bull market run since May last year. If that gives way, there's going to be quite a reckoning for US stocks in the short-term.
