The NASDAQ index has now officially broke below its 200 day moving average 14688.77. The last time the price traded below its 200 day moving average was back in April 2020. The price today is also moved below the 38.2% retracement of the 2021 trading range. That level comes in at 14754.83.
Staying below both those levels would keep the bias in the negative/bearish direction.
What is the next major target area?
Looking at the daily chart, the 50% midpoint of the 2021 trading range comes in at 14304.64. Below that is a swing ceiling that turned to a swing floor near 14181.69. Move to that level, and the NASDAQ index would have a -12.66% decline from the high.
The more tech heavy NASDAQ stocks are being hit as interest rates move higher. The two year yield is up to 0.90%. The 10 year is above 1.80%. This week the treasury will auction off three, 10, and 30 year issues. The market will certainly be focused on the demand.
Recall from last week, the Fed meeting minutes said that the Fed is not only looking to increase the taper (will be finished near the end of the first quarter), looking to raise rates in 2022 (the Fed projected three rate hikes), but are also was looking to decrease the balance sheet. What does that mean as far as the numbers go?
I spoke about it in a post on Friday assuming that the Fed would start by allowing the maturing holdings on the balance sheet to rolloff without replacing the amounts.
This weekend, commentary focused on taking a step further by outright selling holdings (i.e., quantitative tightening or QT).
When the Fed chair spoke about having the tools to slow inflation, selling treasures on the balance sheet would certainly push up interest rates and potentially slow inflation. The market will get to hear the Fed Chair tomorrow during his reappointment testimony in front of the Senate Banking Committee.
Certainly, one of the issues in this economic and Covid influenced cycle is supply chain keeping inflation stubbornly high.
What we saw in the employment report is an offshoot of that problem. Recall, the report showed less job gains, but a sharply lower unemployment rate as people have been exiting the workforce. The maturing, and retiring of the baby boomers, are a problem. We may be near full employment with 10-11 million jobs needed (according to the JOLTS jobs report).
What would be the solution?
Driving up to McDonald's and having your order taken electronically, the burgers and fries and order put together, bagged and delivered electronically as well.
Orders for food and drink at restaurants being take taken solely from your cell phone and perhaps picked up vs delivered to your table.
Trucking being done with autonomous drivers.
The trend will be toward less workers because there will be less workers.
Of course, we are not their yet. There are shortages of chips NOW, but the infrastructure is being built. It will take time though, which could be a problem and cause all sorts of volatility in the meantime.
How all this plays out in the equity markets is impossible to quantify.
However, what we do know is that if the NASDAQ price remains below the 200 day moving average and the 100 day moving average, the technical bias remains to the downside. It's simple as that.
We may move back above those levels. Certainly, the 100 day moving average has seen breaks below its moving average in 2021 (in June, October, December) . We may see a move back above the 200 day moving average today or tomorrow or next week. However, we may not and that is the risk that traders now face as the technical picture weakens.
