Nasdaq expected to face potential technical correction

THE Nasdaq index continued its bullish momentum in recent weeks, sustaining its outperformance in 2023. Other than a slight correction between February and March 2023, the index managed to maintain its uptrend.

The index managed to break above 13,800 on May 18, 2023, achieving its best levels since April 2022. Its performance can be attributed to the strong performance by tech companies, especially mega-cap tech firms such as Nvidia and Alphabet. Other than strong corporate earnings results that surpassed market expectations, the macro-economic environment also provided catalyst for the index performance. The US government is in talks to raise or suspend the debt ceiling to avoid a potential default situation.

Bullish scenario

Nasdaq has continued its bullish run in 2023 breaking above the 61.8 per cent Fibonacci level, as well as the August 2022 high. The index might continue its run towards 76.4 per cent at resistance levels between 14,000 and 14,150. If the index manages to maintain above the resistance levels, it could potentially move towards the next resistance level between 15,000 and 15,200 if other market events, such as the US Federal Reserve’s direction for both inflation and interest rates, support the bullish momentum.

Bearish scenario

Nasdaq might be more likely to face a potential correction situation with the relative strength index (RSI) level breaking above 70. During the previous occasions when Nasdaq’s RSI broke above 70, we noticed that the index had a slight correction after which the RSI dipped back below 70. In addition, the index might not break above the resistance of the 14,100 level easily because of the uncertainty in the macro-economic environment. Apart from the ongoing US government debt ceiling discussions, the persistent inflation level continues to be the underlying risk factor for the index.

SEE ALSO

Investors look past US tech sector as uncertain environment clouds outlook

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

It is important to note that these scenarios are based on technical analysis and market conditions can change rapidly. Traders and investors should closely monitor price movements and market developments to make informed decisions.

The writer is senior investment specialist at Phillip Securities.