US STOCKS OUTLOOK:
- The S&P 500, Nasdaq 100 and Dow Jones plummet amid growing fears that the U.S. economy is headed for a hard landing
- The Nasdaq 100 leads losses on Wall Street as tech stocks bear the brunt of the sell-off
- This article looks at the key technical levels for the Nasdaq 100 to watch out for in the coming days
After Monday’s late day rally and remarkable turnaround in the equity space, investors were hopeful that the recovery would consolidate in the near term, but those upbeat expectations were dashed on Wednesday by a brutal and widespread sell-off triggered by mounting economic worries.
At the closing bell, the S&P 500 plunged 2.81% to 4,175, weighed by a 12% plunge in Tesla share prices, with most sectors in the index down except energy, which notched a tiny gain. The Dow Jones, for its part, dropped 2.38% to 33,240, closing at its worst level since mid-March, dragged down by a steep decline in global consumer bellwether Nike. Meanwhile, the Nasdaq 100 led losses on Wall Street and plummeted 3.87% to 13,009, re-entering into bear market territory and setting a new 2022 low amid widespread tech weakness.
There was no specific catalyst that triggered today’s rout, other than growing fears that the U.S. economy is headed for a downturn on the assumption that the Fed’s aggressive tightening cycle in response to soaring inflation will strangle growth and undermine corporate profits in the future. Risk aversion was evident in the bond market, with Treasury prices higher across the board.
Faced with rising volatility (VIX above 30) and traders fading every single rally, risk appetite will remain subdued in the near term, creating headwinds for stocks and preventing a sustainable rebound in the major averages. While quarterly results and forward-looking commentary during the current reporting period have been healthy for the most part, investors have not cared and continued cut risk exposure, even dumping companies that have posted robust earnings growth and issued constructive guidance, such as Tesla.
Although pessimism and selling activity appear overblown, current dynamics may persist at least until next week when the FOMC announces its May monetary policy decision. If the U.S. central bank manages to convince investors that they will engineer a soft economic landing and won’t spark a recession, the stock market could begin to stabilize, paving the way for a more lasting rebound. Whether or not this scenario will play out is uncertain, but traders should not pin all their hopes on the Fed, as four-decade high inflation limits policymakers’ alternatives.
NASDAQ 100 TECHNICAL OUTLOOK
Following the recent sell-off, the Nasdaq 100 set a new 2022 low near 13,000 mark, a key support zone as shown in the daily chart below. With the index in a bear market and sentiment souring each day, a break below 13K area seems increasingly likely. If the bearish scenario plays out and sellers push price beneath that floor decisively, we could see a move towards 12,630 in the coming sessions, and possibly 12,225.
On the other hand, if buyers resurface and manage to trigger a rebound, initial resistance lies at 13,720. On further strength, the focus shifts higher to the 50-day simple moving average, followed by 14,300, but even if those resistance levels were taken out, the technical damage has been so extreme that the balance of risks would still tip to the downside for the tech benchmark.
EDUCATION TOOLS FOR TRADERS
- Are you just getting started? Download the beginners’ guide for FX traders
- Would you like to know more about your trading personality? Take the DailyFX quiz and find out
- IG’s client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.
—Written by Diego Colman, Contributor