US stocks declined for the fourth straight day as traders focused on the ongoing stimulus talks in the country. The Dow Jones declined by 185 points while the S&P 500 fell by 0.45%. More than 70% of companies in the S&P were in the red. At the same time, the closely-watched fear and greed index has moved from the extreme greed level to greed.
What happened? The biggest concern among traders is whether congress will pass a new stimulus deal proposed by a team of bipartisan leaders. The plan is to split the bills into two, with the bigger package going to companies and vaccinations. The smaller deal will go to states and local officials and contain a clause on liability protection.
Why does this matter? Investors believe that a stimulus will be a good thing for US equities because it will boost spending. Also, it will help to stimulate the economy. However, without a deal, US and global stocks could be under pressure. Indeed, the Fed has already warned that the economy could slump if there’s no deal.
What about the fear and greed index? The fear and greed index is a gauge that looks at various items in the market. Among them are the stock price breadth and stock price strength that are still in extreme greed. Market momentum and put and call options are in the greed zone while junk bond demand and market volatility are in neutral. The index can tell you how investors are positioning their funds.
What next for the S&P 500? On the four-hour chart, we see that the S&P 500 index has formed an ascending channel that is shown in black. It is currently near the lower line of this channel. It has also moved below the 25-day and 15-day exponential moving averages.
Therefore, there are two possible outcomes. First, the S&P 500 could drop to the support and continue falling. It can also bounce back and retest the upper side of the channel at around $3,720.
