21.01.202209:30 Forex Analysis & Reviews: US stock market sees third strong drop in row

S&P500

The US stock market has been falling for three consecutive days. The main US indices dipped by the close on Thursday. The Dow Jones lost 0.9%, while the NASDAQ Composite was down by1.3%. The S&P 500 index dropped by 1.1%.

Asian stock market closed in the negative territory on Friday due to a new wave of sell-off on the US stock market. Japan's stock indices shed 0.85%, while in China, they declined by 0.8%.

As for the commodity market, oil prices also decreased by 1.5%. Brent Crude was trading at $86.80 per barrel.

Omicron is spreading rapidly across the globe. Its cases reached a new high of 3.6 million. The US registered 690,000 new cases, while France reported 425,000 new cases. In India, there were 34,000 cases. Italy, Germany, Spain, and the UK recorded above 100,000 cases yesterday. Nevertheless, mortality is almost unchanged. The death toll in the UK is not high. It remains below the high of January. In the US, some states are reporting a decline in the Omicron wave.

The S&P 500 is trading at 4,482. It is likely to stay in the range of 4,440 - 4,520. On Thursday, the US market tried to resume an upward reversal in the morning. The S&P 500 index rose by 1.5% in the first hours of trading. However, large investors used this growth for new sales. As a result, the index dropped by 1.1%, closing at the intraday lows. In the market, this pattern is called a bearish reversal and it indicates the market's readiness for a fall. The S&P500 index tumbled to the level of October 18 last year. The downward movement totaled 7%, signaling a change in investor sentiment. At the same time, current prices are attractive for purchases.

IT stocks, which have been the biggest gainers of the current upward cycle, suffered significant losses in this correction. The NASDAQ index fell from a high of 16,200 (November 22) by 2,000 or 12.5%. Analysts believe that the index entered a bearish market.

The US economy remains strong. New home sales in 2021 increased by 8.5% compared to the previous year, totaling 6.12 million. Nevertheless, in December, the real estate market slowed down noticeably due to soaring inflation. New home sales declined by 4.6%. Yet, annual sales approached the highest level since 2006. Back then, the real estate market crush was a catalyst for the global crisis of 2008-09.

The labor market also showed signs of slowing down during the week. The number of initial jobless claims grew to 286,000. For the first time in a long time, the number of continuing claims advanced to 1.65 million.

Netflix's net profit increased 1.8 times over the year, to $ 5.1 billion. However, its shares fell yesterday following a decline in the market.

The US dollar index is trading 95.60. It is likely to remain in the range of 95.30 - 95.90. Now, it is fluctuating in the narrow range. It may stay in this range until the FOMC meeting scheduled for next week. Analysts are betting on a further rise.

The USD/CAD pair is trading 1.2520. It is expected to stay in the range of 1.2480 - 1.2560. The pair has formed a bottom at 1.2450. So, it may rebound upwards provided that oil prices do not climb higher.

Conclusion: now, stock prices have become even more attractive for purchases. To this end, the stock market is highly likely to perform an upward reversal in the coming days. Despite a drop of 0.3% at the opening, it is recommended to open long positions on stocks in small volumes.