Source: PaxForex Premium Analytics Portal, Fundamental Insight
After the NADAQ100 experienced a correction of nearly 10%, bears have the upper hand, but traders should expect volatility to increase. US Federal Reserve Chief Powell tried to walk a fine line with his remarks last week during the Jackson Hole Symposium, but he noted that rates could move higher. Core inflation is the primary concern, and some indicators confirm that prices began moving higher. Housing is of particular concern, but global developments concerning food supplies could apply upside pressure on headline inflation.
Since it takes several months for interest rate adjustments to filter through the economy, the impact of the latest increases has yet to impact companies. Technology companies are among the most vulnerable to higher rates, making the NASDAQ100 the most exposed to bearish pressures among the three primary US equity indices. Since technology companies rely heavily on debt and financing, the recent spate of downgrades of many US banks by rating agencies adds additional uncertainties for many companies.
US consumers continue to pile on debt, with credit card debt exceeding $1 trillion last month. Consumer spending remains the primary growth catalyst for the US economy, and higher rates begin to squeeze consumers. Even if the US Fed does not increase interest rates from current levels, they will not lower them, and neither companies nor consumers are prepared to deal with higher rates for longer. Despite hopes of lower borrowing costs in the second half of 2024, it could be 2025 before the Fed could marginally ease interest rates. It could result in a challenging 15 to 18 months for many technology companies, and selling rallies in the NASDAQ100 over the next six months is something traders should consider.
The forecast for the NASDAQ100 remains cautiously bearish, with this equity index inside its Ichimoku Kinko Hyo Cloud following a sell-off. Adding to the bearish sentiment is the narrowing of the Ichimoku Kinko Hyo Cloud with the Senkou Span B flat but the Senkou Span A contracting. A bearish crossover could spark the next leg lower. The Kijun-sen and the Tenkan-sen are flat but are shifting lower, suggesting bears are gaining the upper hand. Traders should also monitor the CCI, which recorded a series of lower lows before completing a breakout from extreme oversold territory. This technical indicator has lost upside momentum, and a reversal of its breakout could drag price action lower. Will bears overpower bulls and regain control over the NASDAQ100 to force this equity index into its horizontal support area and a multi-week low? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the NASDAQ100 Index remain inside the or breakdown below the 14,885 to 15,070 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 14.975
- Take Profit Zone: 14.2250 – 14.445
- Stop Loss Level: 15.150
Should price action for the NASDAQ100 Index breakout above 15,070, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 15.150
- Take Profit Zone: 15.300 – 15.375
- Stop Loss Level: 15.070
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