The S&P 500 index continued its downward trend this week as the fear and greed index retreated to 41. It dropped to a low of $3,908, which was the lowest level since July 20th. The Dow Jones and the Nasdaq 100 indices have also continued falling while the VIX index has bounced back.
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Hard landing ahead?
The S&P 500 has been in a steep sell-off in the past few weeks as investors continue worrying about the possibility of a hard landing. Recent data show that the possibility of a soft-landing of the US and the global economy is fading. For example, data published recently show that the Chinese economy is slowing down remarkably.
The same is true in Europe, which is facing its steepest contraction on record as energy prices soar. In the United States, inflation remains at an elevated level, which is affecting consumer spending and the broad economy. Therefore, with the Fed committing itself to more rate hikes, chances of averting a hard landing are quickly easing.
Meanwhile, the S&P 500 index has also declined because of the strong US dollar. The dollar index has surged to over $110, which is the highest it has been in more than two decades. A strong US dollar has a negative impact on the S&P 500 since most companies have exposure to other countries. For example, a company like Apple will find it difficult to sell iPhones abroad because of the soaring cost.
The fear and greed index has dropped to 41. Market momentum, put and call options, and junk bond demand have all moved to the extreme fear level. They are offset by stock price breadth, which has moved to the greed level. The VIX index and safe haven demand are at the neutral point.
S&P 500 forecast
The four-hour chart reveals that the S&P 500 index has been in a strong bearish trend in the past few weeks. It managed to move below the important support level at $4,174, which was the highest level since June 8. The index slipped below the 25-day and 50-day moving averages while the MACD moved below the neutral point.
Therefore, the index will likely continue falling as sellers target the next support level at $3,640. A move above the resistance point at $4,000 will invalidate the bearish view.