Nasdaq 100 expected to see near-term rebound

Published Mon, Nov 7, 2022 · 05:50 AM
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US stocks fell for the fourth consecutive session as at Nov 3, 2022, continuing the decline due to the recent rate hike of 75 basis points, as well as other economic data that hint at a hawkish Federal Reserve going into 2023. As at Nov 3, Nasdaq had shed 6.84 per cent for the week.

The two-year Treasury yield has hit a high of 4.739 per cent while the 10-year Treasury yield, which is usually used as a benchmark, has also risen above 4.13 per cent. While the Federal Reserve’s actions continue to weigh on stock performance, the next meeting is more than a month away with more earnings and economic data to be released along the way.

Recent technology firms’ earnings releases were lacklustre compared to the general performance of industrials and retail firms. This could be a side-effect of the global economy recovering from the impact of the pandemic with rapidly increasing global travel. However, retail demand is facing headwinds due to persistent inflation and the technology sector might remain the most attractive sector going into the final weeks of 2022, with its relative underperformance for the year providing investors with possible bottom-picking opportunities.

Bullish scenario

The index broke below the June low support level going into October. Current support zone is between 10,440 and 10,550. Trading low reached 10,440 on Oct 13 but has remained above the support zone for the closing level thus far as at Nov 3.

A slight divergence was formed between the chart and the RSI in mid-October, with the RSI observing higher lows, while the index made lower lows. This forms the possibility for a break in the downtrend in the near term for the index to have a consolidation phase or a rebound back to the 11,700 to 12,000 area. If the support zone holds in early November, the current US earnings season, along with the US Federal Reserve already hiking the interest rate by 75bps on Nov 2, might provide more reasons for relief. The next meeting will be in mid-December, which is some time away.

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Bearish scenario

Though there may be a near-term rebound, the overall bearish sentiment continues to weigh on Nasdaq’s performance and limits upside potential. October saw the index rejected off the 11,700 resistance level twice, with the first time coinciding with the 20-day exponential moving average (EMA), and the second at the end of October with the 50-day EMA resistance level.

Nasdaq has also been generally on a downtrend since early September where the 20-day EMA crossed below the 50-day EMA and has stayed below since. If the support zone of 10,440 to 10,550 is broken, the next support will be the 10,000 psychological level.

The writer is senior investment specialist at Phillip Securities

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