Chart Of The Day: Nasdaq Rout Not Over Yet
Fawad Razaqzada | Oct 14, 2022 22:47
- Thursday’s rally was driven by short covering
- Several such bullish reversals have failed this year
- Strong CPI simply calls for more aggressive Fed hikes
After a sharp rebound in the aftermath of a hotter-than-expected U.S. CPI report, the key question on investors’ minds will be whether there will be any further upside follow-through in the stock markets.
Judging by the numerous such short squeezes we have seen this year, the resumption of selling pressure is a strong possibility. That’s because, fundamentally, not a lot has changed. If anything, the bears have even more reason to step in after the stronger inflation data and at these slightly higher levels.
The Nasdaq and other U.S. index futures started Friday’s session higher during the Asian session, but at the time of writing in the early European trade, they were coming off their best levels. Nasdaq futures have returned to the former support zone between 11036 and 11357. The base of this range was low, which had been formed in June.
The big bullish candles from Thursday may encourage some dip buyers to step in today and potentially scare away some more conservative bears.
However, if the bulls want to push the market higher and create a significant low here, they must clear the above resistance zone on today’s daily close. For confirmation, we need to see a higher high above 11730, the most recent high that preceded the latest drop.
That said, the longer-term trend is bearish, and I continue to expect the markets will struggle until something changes fundamentally. Despite yesterday’s sharp recovery, the bears are still in charge of the overall price action. But they must now wait for some form of confirmation to suggest the squeeze is over. Perhaps, it may be best to zoom in on the lower time frames and look for signs to tell Thursday’s sharp rebound was merely another bull trap.
While no one can or should rule out the possibility of further short-term strength, it remains difficult to make a strong bull case for stocks right now.
Get The App
Following the stronger CPI report, it appears that the case for a fourth consecutive 75-basis point hike in September is pretty much sealed, although there are now talks that the Fed could even hike by 100 bps. This may mean stocks and gold should continue to struggle until something changes fundamentally. It is just that it has been a one-sided trade for so long, and a squeeze was inevitable.
Disclaimer: The author does not own any of the securities mentioned in this article.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.