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Nasdaq enters bear market, Dow Jones dips into correction as stagflation concern is fueled by soaring oil prices

The Nasdaq Composite index, rich with technology shares, dipped 3.62% to officially enter the bear market. Dow Jones officially entered correction after Monday’s 2.37% drop.

Source: Bloomberg

US shares declined sharply at the first trading session of the week as the sky-high oil price weighed heavily on the investor’s risk appetite. The Nasdaq Composite index, rich with technology shares, dipped 3.62% to officially enter the bear market defined by a 20% drop from its recent high.

On Monday, Global crude oil prices climbed near the 14-year-high above $135 per barrel as the US and EU officials were looking to ban Russian crude imports. Those concerns layer on top of the possibility of stagflation, which is the combination of weak economic growth with the high inflation rate that has ignited the risk-aversion sentiment across the equity market.

Source: IG

Nasdaq

The daily Nasdaq chart shows that the price has breached below the month-long support level at 13877 and moved towards the yearly floor level. The previous support may now offer pivot point resistance on a bounce.

Above those levels, multiple layers of resistance can be found: the 20 day moving average and the descending trend line connected by the high since the start of this year. As such, the index is expected to encounter imminent pressure from the level around 13877-14100.

Overall, the trend remains bearish-biased for Nasdaq stocks. RSI reading for both daily and the hourly chart has demonstrated a risk-off tendency among the market participants. Moreover, a 'double-top' shape from the 4-hour chart cements the downturn view for the index in the near term.

Nasdaq daily Source: IG
Nasdaq hourly Source: IG

Dow Jones

As the best performer out of three major US indices, Dow Jones officially entered correction after Monday’s 2.37% drop.

As highlighted in the daily chart, a pattern of 'head-shoulder' has been printed from the previous four months’ movement, which is commonly interpreted as a bearish trend-reversal indicator. Usually, the 'neckline' of the 'head-shoulder' shape will turn to be a major resistance or the future bounce. In this case, we are looking at the level around 33553.

Dow Jones Daily Source: IG

From a weekly point of view, the index has been skewed into a downward trajectory and broken through the support level since last April. The next crucial support for the Dow Jones will look at the 100-MA and the lower boundary of the tunnel. Both of them are pointing to the level of 31528.

The RSI indicator is about to step into oversold territory, suggesting that near-term selling pressure may be fading. However, the bear sentiment is more likely to remain valid.

Dow Jones Weekly Source: IG

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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