The more hawkish than expected revision to the FOMC Dot Plot last week keeps on weighing on the Nasdaq Composite as the market might starting to be worrying that the Fed could go further with its tightening cycle and eventually lead to a recession. Fed Chair Powell has also admitted that the soft-landing scenario is not his base case at the moment, despite the good macroeconomic projections. Yesterday, we also got Fed’s Kashkari attributing a 60% chance on the soft landing scenario, but a 40% chance on significant hikes ahead. The rally in Treasury yields is also putting some pressure on the Nasdaq Composite as financial conditions continue to tighten.
Nasdaq Composite Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Nasdaq Composite is breaking out of the key support area around the 13174 level defined by the trendline and the 38.2% Fibonacci retracement level. This breakout opened the door for a much bigger fall into the next support around the 12274 level. The buyers will want to see the price bouncing back strongly above the support zone and leave behind a fakeout to start looking for higher prices.
Nasdaq Composite Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the breakout with the price starting get a bit overstretched on the downside as depicted by the distance from the blue 8 moving average. In such instances, we can generally see a pullback into the moving average or some consolidation before the next impulse.
Nasdaq Composite Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a divergence with the MACD right when the price is breaking out. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we might see a pullback into the downward trendline where we have also the confluence with the 38.2% Fibonacci retracement level. That’s where the sellers are likely to step in with a defined risk above the trendline to position for another selloff. The buyers, on the other hand, will want to see the price breaking above the trendline to confirm the fakeout and pile in to target the highs.
Upcoming Events
Tomorrow we will see the latest US Jobless Claims report. At the moment, it looks like bad data or good data all lead to further downside as the former might point to a recession on the horizon and the latter is likely to keep the Fed hawkish and even force to raise rates further. Nonetheless, the last time we got weak data on the labour market front, the Nasdaq Composite rallied strongly, so this is something to watch out for. On Friday, we conclude the week with the latest US PCE data.
