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SP500 down sharply as Omicron fears reappear

Volatility returned as fearmongering regarding the new COVID variant returned to the markets.

The SP500 index crashed nearly 2% on Monday, drooping to two-week lows as Fed’s tightening and fresh Omicron scare led to a sharp decline in risk assets.

In the Netherlands, the government has announced a fresh lockdown, lasting for at least till the middle of January . In the rest of Europe, governments are holding emergency meetings on new restrictions.

France and Germany imposed bans on arrivals from UK nationals. In addition, the government has said that all bars, restaurants, and cinemas must close by 8 pm in Ireland.

Meanwhile, Dr. Anthony S. Fauci, the nation’s top infectious disease expert, warned on Sunday that the extraordinarily contagious Omicron variant of the coronavirus was raging worldwide and that it was likely to cause another significant surge in the United States, especially among the unvaccinated.

During its last week’s decision, the Fed doubled the tapering amount, ending the QE much sooner, while the central bank now sees three rate hikes in 2022 . On Wednesday, the hawkish statement was ignored, but traders woke up on Thursday and sold stocks quickly.

Additionally, the Fed speakers reiterated their hawkish stance recently, mainly due to the soaring inflation. The Fed Governor Chris Waller stated that a rate increase in March would be “very likely, ” while Mary Daly, president of the San Francisco Fed, said she would support two or three rate hikes next year.

There are no significant macroeconomic data on schedule this week, apart from the revision of the third-quarter GDP on Wednesday and durable goods orders on Thursday. Therefore, volatility could gradually decline heading into the Christmas holiday.

Daily chart is not looking positive right now

The following support will likely be at the 4,500 USD level, where November lows are. If the price drops below it, the medium-term uptrend could be over, possibly leading to the test of the 200-day moving average at 4,370 USD for the first time since June 2020.

Corrections to the 200-day average are welcome in a long-term uptrend, but it will be crucial to defending that level. If not, we could see a decline toward 4,300 USD pretty quickly.

Alternatively, if sentiment improves, the short-term resistance is near 4,600 USD, and if broken to the upside, the index will likely jump to the all-time highs in the 4,700 USD region.

sp500 daily chart SP500 daily chart, Source: Author´s analysis,

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