Nasdaq 100 - Why the downtrend will continue to unravel
Over the past few weeks, we have been raising caution about the “bear market rally” in the stock market and cryptocurrencies. Then, yesterday, we warned about the rally's waning volume. We speculated that it was foreshadowing a possible bull trap; and we expressed our expectations of invalidation of the bullish breakouts (ones that pierced above the high from 31st May 2022 and 1st June 2022). Since then, these breakouts became invalidated, and the Nasdaq 100 index declined 2%. At the moment, we monitor the situation and look for an increase in volume, suggesting further growth in selling pressure. Over the course of the year, we expect the Nasdaq 100 to continue its gradual decline toward a new low.
Negative fundamental factors
We still foresee foes to the rising price of NQ1! among higher interest rates in the U.S. and economic tightening. Accordingly, we expect these developments to weigh on the index throughout 2022. Another development we pay close attention to is the measure of bounces in particular stocks, which are characteristic of the downtrend. Furthermore, we also continue to see institutional players offload their assets while retail investors are on the hunt for stocks at a discount; inflows are also very small compared to their past levels. We expect lay traders to be shaken out of the market once substantial declines start taking place; thus, they will reinforce the selling pressure and drag prices lower. Overall, fundamental factors are very bearish for the U.S. stock market, with the FED set to pursue demand destruction.
Technical analysis - daily time frame
RSI and Stochastic turned bearish. MACD points to the upside, but it remains below the 0 points. DM+ and DM- performed bullish crossover; we will look for its invalidation in the short term. Overall, the daily time frame is bearish for NQ1!.
Illustration 1.01
The picture above shows recent bullish breakouts and invalidations of them. Retracement of breakouts will be bullish for NQ1!.
Technical analysis - weekly time frame
RSI, MACD, and Stochastic remain bearish. The same applies to DM+ and DM-. Overall, the weekly time frame is bearish.
Illustration 1.02
Illustration 1.02 shows simple support/resistance levels. Favorably, we would like to see further confirmation of our thesis by the plunge of NQ1! below the short-term support.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Negative fundamental factors
We still foresee foes to the rising price of NQ1! among higher interest rates in the U.S. and economic tightening. Accordingly, we expect these developments to weigh on the index throughout 2022. Another development we pay close attention to is the measure of bounces in particular stocks, which are characteristic of the downtrend. Furthermore, we also continue to see institutional players offload their assets while retail investors are on the hunt for stocks at a discount; inflows are also very small compared to their past levels. We expect lay traders to be shaken out of the market once substantial declines start taking place; thus, they will reinforce the selling pressure and drag prices lower. Overall, fundamental factors are very bearish for the U.S. stock market, with the FED set to pursue demand destruction.
Technical analysis - daily time frame
RSI and Stochastic turned bearish. MACD points to the upside, but it remains below the 0 points. DM+ and DM- performed bullish crossover; we will look for its invalidation in the short term. Overall, the daily time frame is bearish for NQ1!.
Illustration 1.01
The picture above shows recent bullish breakouts and invalidations of them. Retracement of breakouts will be bullish for NQ1!.
Technical analysis - weekly time frame
RSI, MACD, and Stochastic remain bearish. The same applies to DM+ and DM-. Overall, the weekly time frame is bearish.
Illustration 1.02
Illustration 1.02 shows simple support/resistance levels. Favorably, we would like to see further confirmation of our thesis by the plunge of NQ1! below the short-term support.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
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