Source: PaxForex Premium Analytics Portal, Fundamental Insight
The Technology sector remains under selling pressure as Treasury yields continue to rise, inflation heats up, and the US Fed plots the course for monetary tightening. With up to four interest rates hikes for 2022, an accelerated end to monthly liquidity injections, and a potential of balance sheet reductions, borrowing costs will rise. The Technology sector may suffer the most, especially given its unrealistic and unwarranted valuations. The fourth-quarter earnings season will kick off this week, and several analysts started downgrading large-cap tech names.
The NASDAQ 100 had a rough start to 2022, dropping 9% before a short-covering rally took price action back into its Ichimoku Kinko Hyo Cloud for a massive three-day, 5% reversal. Volatility is expected to remain high, and traders should consider another 9% to 20% drop from current levels. Inflation and inflationary pressures will persist, and borrowing costs will climb. The portfolio rotation out of growth and into value will add to selling pressure on the NASDAQ 100 and technology stocks in general, which enjoyed outsized gains during the pandemic. A mean reversion may follow throughout 2022.
Today’s December CPI data out of the US is expected to roil technology stocks and could derail its most recent recovery. The US CPI for December is predicted to increase 0.4% monthly and 7.0% annualized. Forex traders can compare this to the US CPI for November, which rose 0.8% monthly and 6.8% annualized. The US Core CPI for December is predicted to increase 0.5% monthly and 5.4% annualized. Forex traders can compare this to the US Core CPI for November, which rose 0.5% monthly and 4.9% annualized.
The forecast for the NASDAQ 100 remains cautiously bearish after this index recovered from the breakdown below its Ichimoku Kinko Hyo Cloud, which is approaching the likelihood of a bearish crossover. Adding to the short-term negative outlook are the Kijun-sen and the Tenkan-sen, which flatlined, confirming the absence of bullish momentum. After the CCI retraced its collapse into extreme oversold territory, traders should monitor it for a renewed contraction below -100 from where more downside awaits. Can bears add to the recent correction in the NASDAQ 100 and force price action into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the NASDAQ 100 Index remain inside the or breakdown below the 15,575 to 16,075 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 15.875
- Take Profit Zone: 14.380 – 14.600
- Stop Loss Level: 16.275
Should price action for the NASDAQ 100 Index breakout above 16,075, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 16.275
- Take Profit Zone: 16.775 – 17.000
- Stop Loss Level: 16.075
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