Source: PaxForex Premium Analytics Portal, Fundamental Insight
Today’s trading session is light on economic data to close off another record-breaking performance in equity markets. The NASDAQ100 has climbed a wall of worries, and traders have ignored statements by the US central bank regarding interest rate cuts. During the fourth quarter of 2023, tech investors pushed the NASDAQ100 from an October intra-day low of 14,060 to the current all-time intra-day high above 17,815. Their primary argument was the expectation for inflation to continue moving towards the 2.0% level and for the US Federal Reserve to announce five 25 basis point interest rate cuts, starting as soon as March 2024. Us Federal Reserve Chief Powell already ruled out a March interest rate cut.
Inflationary pressures increased, and the US labor market remains red-hot, forcing the US central bank to stay put with higher rates for longer. Equity traders ignore this scenario and continue to follow the herd, pushing price action higher among a thin field of companies responsible for most of the NASDAQ100 gains. All central banks in developed markets, except for the Bank of Japan, face a similar scenario, and recession risks have increased since the start of 2024.
Consumer spending was a surprise growth story, puzzling economists and analysts alike, but the US consumer only thrived by pushing heavy debt loads to all-time highs every month. The average credit card balances have exceeded $6,800, and consumers are running out of debt-funded shopping opportunities. The Middle East conflict has added to inflationary pressures. Insurance premiums and shipping rates have surged, which filter through to higher prices, keeping inflation stagnant near current levels with a risk of drifting higher.
The forecast for the NASDAQ100 turned cautiously bearish after this equity index recorded fresh all-time highs. Volatility could increase with the Tenkan-sen and the Kijun-sen flat. The narrowing Ichimoku Kinko Hyo Cloud, where the Senkou Span B has flatlined and the Senkou Span A drifts marginally higher, points towards the potential of a price action correction following an almost 80% gain since the December 2022 lows. Traders should also monitor the CCI in extreme overbought territory. A negative divergence has formed over the past month, favoring bears to mount a profit-taking sell-off. This technical indicator has plenty of downside potential, and a breakdown below 100 could trigger a reversal. Can bears overpower bulls to regain control over the NASDAQ100 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 NASDAQ100 Index remain inside the or breakdown below the 17,685 to 17,890 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 17,800
- Take Profit Zone: 16,575 – 16,825
- Stop Loss Level: 17,.470
Should price action for the NASDAQ100 Index breakout above 17,890, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 17,980
- Take Profit Zone: 18,070 – 18,160
- Stop Loss Level: 17,890
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