It would appear that investors are starting to get over the crazy situation that hit the US markets today following the liquidation of a US-based hedge fund’s positions. According to a report monitored on MT Newswires, a hedge fund which has been identified as Archegos Capital Management, was unable to meet a margin call issued on its losing positions, leading to their forced liquidation.
The situation undermined investor sentiment on Monday, leading to a steep fall in US banking stocks. The situation dragged down the Dow Jones Industrial Average early, but it seems that investors are starting to shake off the situation. The Dow is now up 0.12% on a roller coaster day that had seen the index drop by as much as 0.2% on the day.
The worst of it may still not be over as the scale of the liquidation is still being determined. Credit Suisse and Nomura warn that their losses due to the transactions in question could run into billions of dollars. Nomura has put out a potential loss figure of $2 billion, while Credit Suisse is being more guarded in its loss estimation, warning it could be “significant” enough to impact its first-quarter results.
Technical Levels to Watch
The Dow is now inching its way towards the all-time high at 33252. If the Dow Jones index is rebuffed at that level accompanied by a pullback, we could have a potential double top. This top would need bears to take out 32666 and the neckline at 32084 for the pattern to be completed. This would set the projected measured move to target the 31282 support level.
On the other hand, a break above the 33252 top sets a new record, and also invalidates the potential double top scenario. This opens the door for price to target the 34216 price level, with the psychological resistance at 34000 forming a potential pitstop.
Dow Jones Daily Chart