Headwinds for Nasdaq going into year’s final quarter

THE Nasdaq Index fell sharply on Thursday (Aug 24) just after a tech rally the previous day as markets braced for the potential impact from a key speech from US Federal Reserve chairman Jerome Powell. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all fell between 1 and 2 per cent. The information technology sector fell by more than 2 per cent with major tech companies recording a decline despite Nvidia reaching all-time highs with its remarkable quarterly earnings announcements.

Bullish scenario

The recent high of 15,932 in July marked a general reversal of the uptrend for the index when it did not manage to break above the 16,000 psychological mark. Nasdaq also broke the 20-day and 50-day simple moving average (SMA) level for the first time since April 2023 and March 2023, respectively. This signalled a potential shift to consolidation phase or downtrend if the support zone does not hold.

The 20-day SMA level had also just crossed below the 50-day SMA level, coinciding with the index being rejected from the 15,200 resistance level in the attempted rebound in the past few days. However, if the 76.4 per cent Fibonacci support level manages to hold at the 14,700 area, the index might be able to trade within the range of 14,600 to 15,200, allowing potential short-term opportunities before more clarity sets in for the quarter with more information on the earnings results and the Fed.

Bearish scenario

With the 20-day SMA level breaking below the 50-day SMA level, the bearish sentiment might set in to test the next Fibonacci level for 61.8 per cent at the 13,900 area if the 76.4 per cent level does not hold. If the interest rate environment continues to dent investor sentiment, the index might continue to move towards the 50 per cent level, which is also the resistance-turned-support area during the April to May period and also coinciding with the 200-day SMA area.

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The index is seeing a narrowly based performance with it being influenced greatly by a small number of individual counters which might signify weakness in the overall market, especially in the tech sector. Thus, a pull-back to consolidation or a short-term downtrend could likely set in going into the final quarter of 2023.

The writer is senior investment specialist at Phillip Securities