The Nasdaq100, as other US stock indices, has been on a pretty good run for 2 months as the market cheered about weaker economic data, the Fed peak hawkishness and the inflation rate slowing more than expected.
All of this led the market to expect the Fed to pause their tightening cycle sometime in Q1 2023 with possible rate cuts coming in H2 2023.
Recently, the market struggled to keep up the upside momentum as economic data showed resilience in the economy, which could lead the Fed to a higher terminal rate to achieve their 2% target or keep the interest rates higher for longer.
In fact, we saw risk sentiment in the market sour with the beats in the NFP, ISM Services PMI and PPI data. Those reports also led the market to err on the defensive side ahead of the CPI report.
Yesterday, the CPI report missed expectations again confirming the disinflationary trend that may take us back to the 2% target that the Fed is aiming for. The problem though is that the Fed cannot fold now because it would be still too early for them, and they could risk even more easing in financial conditions. This could lead to inflationary pressures later and impede the achievement of the 2% target.
So, while the market may be in a better mood now, soon it may be the time to start fearing an overtightening from the Fed. The last time the market feared an overtightening was in 2018 and it fell hard as the Fed maintained the hawkish stance.
NASDAQ100 Technical Analysis
Recent two weeks of price action and catalysts on the NASDAQ100 on tradingview.com
On the technical side the price has been ranging for the last 2 weeks as tier one economic data increased the fear of a possible surprise in the CPI report and consequently a more hawkish Fed.
As you can see in the picture above, the CPI instead missed expectations and the market now sees the top in the Fed tightening cycle even nearer. In fact, the miss in the report doesn’t change the 50 bps hike coming today, but it could lead to a 25 bps hike in February and a pause at the March meeting IF the data keeps decelerating in such a notable way.
Looking at the daily chart below we can see that the 11400-11700 area has been a pretty good spot as resistance that now turned into support.
The price couldn’t break that area on the way down as the market was awaiting the CPI report and the FOMC meeting. The spike after the CPI report got rejected near the blue downward trendline.
A break above that trendline should lead to more upside with a possible initial target at the 12990 level. If the market starts to fear the overtightening as the Fed keeps at it and the inflation rate slows down meaningfully, then we can expect the price to break below the blue support area and the orange upward trendline with an initial target being the low at 10494 or even lower.
Daily chart of the NASDAQ100 on tradingview.com
Keeping this fundamental context in mind and the possible risks gives us a better view of the market and the technical levels help with risk management and trading positioning. Also be prepared for the FOMC and know the expectations ahead of the event, so you can spot more easily the surprises and the things already priced in.
