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Nasdaq 100 Strained by Sour Sentiment, Traders Eye Possible 2022 Low Breakout

Nasdaq 100 Strained by Sour Sentiment, Traders Eye Possible 2022 Low Breakout

Diego Colman, Market Analyst

US STOCKS OUTLOOK:

  • S&P 500, Nasdaq 100 and Dow Jones extend losses after Wednesday's decline
  • There are no major economic releases until Tuesday next week, so sentiment should continue to dictate market direction
  • This article looks at the key technical levels to watch for in the Nasdaq 100 over the next few days

Most Read: Euro Soars on Broad-Based U.S. Dollar Weakness. Will EUR/USD Extend its Recovery?

U.S. equities were subdued Thursday as sentiment remained fragile after Wednesday’s monster sell-off. Stocks struggled for direction and swung between gains and losses for most of the session, but eventually headed lower in late trading despite a 5% drop in the VIX, with dip buyers not taking the bait on fears that risk assets could continue to retreat in the near term.

At the closing bell, the S&P 500 dipped 0.58% to 3,900, finishing slightly above the day’s worst levels, when it came within a whisker of retesting its 2022 low. Meanwhile, the Dow Jones dropped 0.75% to 31,253, as Salesforce, Visa and 3M Company lost more than 1%. For its part, the Nasdaq 100 fell 0.44% to 11,875, despite the pullback in long-term US Treasury yields.

The bearish catalyst remained the same: growing fears that the U.S. economy is headed for a hard landing, in part due to the Federal Reserve's aggressive tightening cycle aimed at curbing runaway price pressures. The likelihood of a near-term recession, coupled with stubbornly high inflation, is perhaps one of the major threats for US firms and their profits.

While corporate earnings have been resilient during the ongoing reporting period, there are signs that their margins are beginning to compress amid rising cost pressures. Demand also appears to be weakening as falling real income challenges the consumer. So far, however, we have not seen any significant downgrades in earnings estimates, but bank analysts may soon begin to mark down their projections if the economic environment continues to deteriorate. This poses a serious risk to stocks.

Looking ahead, the economic calendar is thin until Tuesday next week, when the S&P Global will release this month's preliminary US manufacturing and services PMIs. In the absence of key data until then, sentiment should continue to drive price action on Wall Street, but with morale damaged and uncertainty rising, the broader outlook remains biased to the downside for equities – a situation that complicates the recovery prospects for the S&P 500, Dow, and Nasdaq 100.

NASDAQ 100 TECHNICAL ANALYSIS

After the recent rout, the Nasdaq 100 is currently hovering slightly above its 2022 low located at 11,692, a major technical support for the index. With selling appetite on the rise, a retest of that area could be around the corner. On a retest, it is important to watch how prices react, but a break lower could amplify bearish sentiment, setting the stage for a move towards 11,000, the next key floor. On the flip side, if buyers return and push the price higher, initial resistance appears around 12,220. On further strength, the focus shifts up to 12,575.

NASDAQ 100 TECHNICAL CHART

Nasdaq 100 technical analysis

Nasdaq 100 Chart Prepared Using TradingView

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---Written by Diego Colman, Market Strategist for DailyFX

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

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