Nasdaq 100 Index treading on thin ice as it faces multiple headwinds

Teo Huan Zi

US stocks resumed a sell-off on Thursday (Sep 29), sending the S&P 500 to a new low for the year at closing. The tech-heavy Nasdaq Composite also fell 2.8 per cent and is on track for a loss of more than 9 per cent for the month of September. The S&P 500 Index is headed for its third straight quarter of losses for the first time since the 2008-2009 financial crisis. The Nasdaq 100 Index is also facing new lows and is headed for the worse performance experienced since 2002.

On the flip side, the US Dollar Index is headed for its fifth straight quarter of gains, unseen since 1998. The strength of the US dollar played a part in the recent sell-off due to the potential impact expected on the US multinational companies’ earnings.

Going into the fourth quarter, the Nasdaq 100 Index is going to be treading on thin ice as it faces multiple headwinds such as persistent inflation, hawkish central banks and geopolitical issues. Though most countries have opened up their borders, China is still largely impacted due to strict control measures, preventing the rebound trajectory for consumer demand and spending in the Asia region. Tech companies, many of which have part of their supply chain located in the Asia region, also continue to face disruptions in production or logistic-related issues.

Bullish scenario

The Nasdaq 100 Index might currently be positioned at its support region, near the low seen in mid-June 2022, forming a potential double bottom if the support region of 11,000-11,200 is able to hold off the current downtrend. US stocks might also have a relief rally in October with the next Federal Reserve meeting in November.

If a rebound occurs, the 50-day Exponential Moving Average (EMA) level, currently at around 12,200 to 12,300, would be the main short-term resistance, reflecting a possible 8-10 per cent rebound if any good news is presented in the current bleak outlook. The 200-day EMA level would be a strong resistance to cap any potential rebound above the 13,000 level unless persistent inflation is shown to have been contained in the near term to a large extent.

Bearish scenario

Since the 20-day EMA broke below the 50-day EMA in early 2022, the Nasdaq 100 Index has performed in a general downtrend. The 200-day EMA has also became the generic benchmark for the main resistance, with the index bouncing below it in March and August this year. The rebound from June to August was around 24 per cent. If the market continues the downtrend, the support - if the current double bottom is broken - might be at around the 10,400-10,500 area, about a 24 per cent decline from the August high and about 7 per cent potential decline from current levels.

October might see a rebound but the fourth quarter will likely see the general decline continue with the various headwinds looking to build up going into November and into the festive December month. The Santa Claus rally might not be able to rescue the US market performance this year.

The writer is senior investment specialist at Phillip Securities