Source: PaxForex Premium Analytics Portal, Fundamental Insight
As the 2022 trading year closes, many will reflect on what happened and what 2023 has in store. Inflation and central bank interest rate increase dominated most of 2022 and pressured financial markets to the downside. The first quarter of 2023 should continue this trend until central banks arrive at their terminal rate. Technology stocks are among the most sensitive to rising borrowing costs, and the NASDAQ100 led the correction. Some investors have begun to bottom fish and prepare their portfolios for 2023, but it is unlikely that stocks have recorded their final bear market low.
Inflation may have peaked, but many dismiss the potential of a deep recession or stagflation in 2023, which can drag on and cause more harm. Despite some technology stocks appearing at fair value, a 20% to 33%+ drop from current levels across equity markets remains likely. Central banks will increase interest rates further and then keep them elevated throughout 2023. Investors will shun growth stocks and favor value, making some blue-chip technology stocks like IBM attractive. The NASDAQ100 appears ripe for more selling, led by companies like Meta, Alphabet, Amazon, Microsoft, Netflix, and other industry bellwethers.
Economic data from the US confirms a slowing economy, and inflation reports show signs of stagnation at elevated levels. The US Federal Reserve wants the labor market to slow, and many tech companies announced layoffs. Overall conditions remain tight, and wage-based inflationary pressures add to the broad-based problem. Technology investors should approach the sector cautiously and look for value stocks that pay dividends. Equity markets missed their Santa Clause rally, and January may set the tone for another year in the red. Volatility over the next four to six weeks could spike as portfolio managers adjust holding and potentially realize that more downside lies ahead.
The forecast for the NASDAQ100 remains bearish after this index broke down below its narrowing Ichimoku Kinko Hyo Cloud. Adding to downside pressures is the descending Tenkan-sen, which completed a bearish crossover below the flat Kijun-sen. Volatility could increase with year-end window dressing, and traders should monitor the CCI in extreme oversold territory. A false breakout is likely, which may take this technical indicator to a lower high before reversing. Can bears maintain control over price action and force the NASDAQ100 into its horizontal support area below 10,000? 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 10,620 to 11,080 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 10.820
- Take Profit Zone: 9.380 – 9.585
- Stop Loss Level: 11.280
Should price action for the NASDAQ100 Index breakout above 11,080, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 11.280
- Take Profit Zone: 11.645 – 11.820
- Stop Loss Level: 11.080
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