The Nasdaq sold off sharply
last week as growth concerns coupled with widening credit spreads and risks of
renewed US-Iran strikes weighed on risk sentiment. Although we haven’t seen any
US attack so far, the risk increases as we get closer to the midterms.
The fundamentals continue
to point towards further downside in the index given almost zero bullish drivers
at the moment. Widening credit spreads, inflation pressures, growth risk,
elevated energy prices, geopolitical tensions and hawkish Federal Reserve should
keep any rebound limited.
The Middle East crisis is one
of the most important factors. A de-escalation in the Saudi-Houthi conflict or
a surprise breakthrough in US-Iran negotiations would likely trigger a big correction
in oil prices and support the Nasdaq.
This week, the focus will also be on the FOMC decision
on Wednesday where the Fed is widely expected to keep interest rates unchanged.
The decision is unlikely to spark major moves unless the Fed surprises with a
rate hike.
Keep in mind that we won’t get the Dot Plot at this
meeting, so the attention will be on Fed Chair Warsh. Given his reluctance to
provide forward guidance, though, he’s unlikely to say much, although traders
will keep an eye for any hawkish surprise.
NASDAQ TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see the Nasdaq (US100 CFD contract) is consolidating near the 28,742 level. The buyers
are likely stepping in here, with a defined risk below the level, to position
for a rally into new record highs. The sellers, on the other hand, will want to
see the price breaking lower to increase the bearish bets into the 26,971 level
next.
NASDAQ TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have a
downward trendline defining the bearish momentum. If we get a pullback, we can
expect the sellers to lean on the trendline, with a defined risk above it, to
position for a drop into the 26,971 level. The buyers, on the other hand, will
look for a break higher to pile in for a new all-time high, with the 30,000 as
the first target.
NASDAQ TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can
see more clearly the consolidation near the 28,742 level. There’s a minor
resistance zone around the 29,200 level where we can expect the sellers to step
in to target new lows, while the buyers will look for a break to extend the
pullback into the downward trendline. The red lines define average daily range for today.
UPCOMING CATALYSTS
Tomorrow we get the US Consumer
Confidence report. On Wednesday, we have the FOMC rate decision. On Thursday,
we get the US GDP report, the US PCE and the latest US Jobless Claims figures.
On Friday, we conclude the week with the US Employment Cost Index.
This article was written by Giuseppe Dellamotta at investinglive.com.