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Nasdaq 100 Gains as Traders Seek Exposure to Risk-Assets on Santa Rally Hopes

Nasdaq 100 Gains as Traders Seek Exposure to Risk-Assets on Santa Rally Hopes

Diego Colman, Contributing Strategist


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  • Nasdaq 100 gains as broad-based bullish sentiment prevails on Wall Street
  • Seasonality and fears of missing out on the Santa’s rally may continue fuel buying momentum, propelling the tech index higher heading into 2022
  • However, in the medium term, the transition to tighter monetary policy in the U.S. may become a headwind for stocks, especially those in the technology and growth space with long-duration cash flows

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Most read: S&P 500 Snaps Back from Support, New Highs in Sight

U.S. stocks continued to gain ground on Wednesday after Tuesday’s massive rally, buoyed by rising consumer confidence levels and news that the FDA has issued an emergency use authorization for Pfizer’s oral antiviral treatment for COVID-19.

At the closing bell, the S&P 500 gained 1.02% to end the day at 4,696, less than 20 points below its record close. Meanwhile, the Nasdaq 100 surged1.21% to 16,180, supported by a sharp jump in Tesla shares after Elon Musk announced that he has achieved his goal of selling 10% of his stake in the electric car company.

Although December is usually one of the quieter periods for financial markets, volatility has been extraordinarily high this time around amid pandemic uncertainty and the Fed's monetary policy hawkish turn. During this period, the VIX has exploded higher, reaching a 10-month high of 35.32, before settling below the psychological level of 20 as excessive fear has begun to dissipate.

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Focusing on the outlook, the constructive profile for corporate earnings can be seen as a positive catalyst for stocks over the medium term, but there are headwinds looming on the horizon. One such threat is the transition to tighter monetary policy in the U.S. The Fed's decision to double its pace of tapering and its inclination to raise borrowing costs three times in 2022, just as the economy slows and goes through the late expansion cycle, may create a difficult setting for equities, particularly for tech and growth companies that tend to thrive in low-rate environments. This means the Nasdaq 100 may be in for a wild ride and some pain in early 2022.

In the very near term, however, the Nasdaq 100 could continue to charge higher thanks to broad-based bullish sentiment, seasonality, and herd buying mentality on “fears of missing out”. The omicron strain has recently caused volatility and risk aversion, but new studies suggesting that people infected with this variant have a very low risk of hospitalizations appear to have reduced virus anxiety, prompting traders to re-engage and jump back in to participate in the often-sought-after Santa Claus rally.

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From a technical standpoint, after bouncing off support earlier this week, the Nasdaq 100 has managed to break above its 50-day moving average, a bullish signal for price action. If the tech index holds above this indicator in the coming sessions, buying interest could accelerate, paving the way for a move towards the 16,430-resistance zone. If this barrier is breached, the index could be on track to retest its all-time high near 16,765.

On the other hand, if the Nasdaq 100 fails to hold above the 50-day SMA and breaks below this floor decisively, bears could resurface and trigger a pullback towards horizontal support at 15,530. If the price falls below this area, channel support near 15,200 would become the immediate bearish target.


Nasdaq 100 (NDX) chart prepared in TradingView


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---Written by Diego Colman, Contributor

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.