A closer look at the Nasdaq
US indices were little changed on Monday, allowing the Nasdaq to return above the 16,000 territory thanks to robust buying near the NY session end. The lack of momentum, in our view, masks impressive internal currents in global financial markets.
The Dollar Index has accelerated its rise, breaking the upper bound of the upward channel since the beginning of the year. Separately, 10-year government bond yields continue to rise, reaching 1.62%. These factors have formed a rather stressful environment for technology stocks, which predominantly make up the Nasdaq in February and March this year.
But, in contrast to the start of the year, growth stocks are regarded relatively well, quickly finding support from buyers. In our view, this buying on dips is nothing more than a habit formed since 2018 but lacks a fundamental base, nor is it sustainable.
The atmosphere of a rising dollar and the announced QE cuts create the conditions for higher volatility. This does not mean that we are on the cusp of an 80% correction in the Nasdaq as it was in 2000-2003. Instead, following the example of 2013-2015, we should expect deeper corrections (by 5-15%) in the coming months from the stock market, i.e. much deeper than we have seen in the last 18 months.
We see the first significant line of defense for the bears as the area of the September highs near 15700 (-3% from current levels and -5% from the peak). However, it is worth being prepared that the Nasdaq could fall back below 15000 before the end of the year if the Fed's plans and the Dollar's strengthening remain in place.
This article was submitted by FxPro's Senior Market Analyst Alex Kuptsikevich.
