This article is written exclusively for Investing.com
Following Thursday's rally, as index futures hit new record highs, index futures fell sharply in the run-up to the US opening on Friday, along with . It was higher across the board.
The culprit? Rising Yields
Bond yields returned to 1.6% after President Biden signed the latest $ 1.9 trillion stimulus plan, which has increased prospects for stronger recovery and inflation. Such a scenario would require a tighter monetary policy from the Fed, which is considered particularly bad for high-flying technology stocks. Investors are concerned that yields will increase further, which will reduce the value of future cash flows from growth companies.
So keep a close eye on the after the tech-heavy index encountered strong resistance after a few days of solid gains. The sellers intervened again after the index started backlash around the shaded area shown on the chart. This is where the point of origin of the initial disturbance coincides with the now declining 21-day exponential moving average:
The chart looks troubling to the bulls as it shows that Thursday's escape attempt of a bear channel failed. Such failures are typical of a changing trend. In this case, the long-term bull trend appears to have reversed after the index broke below its 1-year bullish trend line a few weeks ago.
If the index ends back inside the bear channel on Friday, I would expect further losses early in the next week.
Short term support is seen around 12700. There will be many sell stops resting below this level from traders who bought the last rebound. If the index exceeds this level, expect a sharp downward effect.
It is therefore imperative that the bulls manage to defend this level today. Failure to do so could cause the index to fall all the way to 12400 in the next few days, and possibly fall further over time
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