Source: PaxForex Premium Analytics Portal, Fundamental Insight

US equity markets remain in a bear market, led by the tech-heavy NASDAQ100, which led the last stage of the artificial bull market higher. The long-term trend remains bearish, as inflation is high and could remain well above the Federal Reserve’s 2.0% target for significantly longer than forecast. The economy is slowing, and some fear a recession has already begun following the surprise first-quarter US GDP contraction. Overall fundamental and technical conditions point to plenty of downside potential for equity markets globally as central banks raise interest rates and unwind balance sheets.

Headline economic figures like last Friday’s NFP report cloud the underlying picture. While the economy added jobs, the household survey showed a loss, and the real unemployment rate rose to 7.0%, which fails to account for those who stopped looking for employment. With equity market valuation disconnected from reality over the past few years, traders should brace for a mean reversion, with the subsequent notable support level for the NASDAQ below 10,000. Sell-offs, especially in strengthening bear markets, go in cycles interrupted by minor bull traps, and conditions are excellent for one to form over the next two trading weeks.

Volatility is likely to increase as bulls battle bears, but central banks just began their interest rate increases, while the global economy is in the early phases of a slowdown. Even if economies can avoid a technical recession, defined by two consecutive quarterly contractions, the cycle could be more viscous with sub-standard growth rates for an extended period, while inflation will remain high and keep consumer spending depressed. It is known as stagflation and can damage economies more than a recession, as it could last for years, fueling a secular bear market.

The forecast for the NASDAQ100 remains long-term bearish, with a potential 50%+ sell-off ahead, but short-term bullish momentum has increased. Price action is ripe for a minor short-covering rally into its descending Ichimoku Kinko Hyo Cloud before resuming its downtrend. The Kijun-sen and Tenkan-sen show signs of a temporary pause, and a positive divergence formed in the CCI in extreme oversold territory. Traders should monitor this technical indicator for a breakout above -100 before cautiously placing buy orders with tight stop losses. Can bulls manage a small rally before bears regain control of the NASDAQ100 and force more 2022 lows? 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 breakout above the 12,400 to 12,625 zone, PaxForex recommends the following trade set-up:

• Timeframe: D1           
• Recommendation: Long Position
• Entry Level: Long Position @ 12.570
• Take Profit Zone: 13.590 – 13.830
• Stop Loss Level: 12.200

Should price action for the NASDAQ 100 Index breakdown below 12,400, PaxForex recommends the following trade set-up:

• Timeframe: D1           
• Recommendation: Short Position
• Entry Level: Long Position @ 12.200
• Take Profit Zone: 10.955 – 11.245
• Stop Loss Level: 12.400

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