Wall Street closes sharply lower dragged by technology

• Technology and communication services record heavy losses.
• Rising bond yields lift financials.
• Crude oil sell-off forces energy to close in red.

Major equity indexes in the U.S. started the day in the red and continued to push lower to close the day with substantial losses as a more than 20% increase seen in the CBOE Volatility Index pointed out to a dominating risk-off mood.

Following reports of Chinese intelligence using tiny computer chips to hack major tech companies in the United States, tech shares suffered with Apple and Amazon shares both falling around 2% on the day. “The attack by Chinese spies reached almost 30 U.S. companies, including Amazon and Apple, by compromising America’s technology supply chain, according to extensive interviews with government and corporate sources,” Bloomberg reported. The S&P 500 Technology and Communication Services indexes closed the day 1.78% and 1.48% lower, respectively.  

Meanwhile, risk-aversion also hit commodities and the barrel of West Texas Intermediate, which rose to its highest level in nearly four years near $77 yesterday, erased more than $2. Subsequently, the S&P 500 Energy dropped 0.5%.  

On the other hand, rising T-bond yields continued to boost the rate-sensitive S&P 500 Financials Index, which finished the day 0.7% higher. “The worldwide spread of yesterday’s sell off in Treasuries, the U.S. 10-year reached a new seven year high of 3.22 percent in Europe, is a warning that the Fed’s rate normalization may be upon us, and at a rush,” FXStreet Senior Analyst Joseph Trevisani said.

The Dow Jones Industrial Average lost  209.82 points, or 0.78%, to 26,618.57, the S&P 500 fell 24.6 points, or 84%, to 2,900.91 and the tech-heavy Nasdaq Composite dropped 147.24 points, or 1.83, to 7,877.84.

DJIA technical outlook via FXStreet Chief Analyst Valeria Bednarik

The Dow trimmed most of its weekly gains, but it’s far from having lost its bullish bias, as, in the daily chart, it bounced sharply after testing a firmly bullish 20 DMA, which continues advancing well above the larger ones. Technical indicators in the mentioned chart retreated from nearly overbought readings, maintaining their bearish slopes within positive ground.

In the 4 hours chart, the index settled below a now flat 20 SMA, technical indicators entered negative territory, with the Momentum still heading south and the RSI trying to recover now around 46, yet the index bounced from a firmly bullish 100 SMA, also suggesting that bulls are still in control of equities. The benchmark could recover further Friday following the release of a strong US employment report.

Support levels: 26,663 – 26,705 – 26,759.

Resistance levels: 26,551 – 26,510 – 26,468.