Chart of the Day: Nasdaq Could Rally to 12,500 Before Moving Lower

11/14/2022

2 minutes read

2022.11.14 13:39

US increased 7.7% year on year (yoy) in October, the lowest rise this year and half a percentage point lower than the 8.2% registered in September. prices—excluding volatile energy and food prices, which is the Fed’s preferred gauge—rose 6.3% yoy, or 0.3% month on month (mom), pulling back from a 40-year high, slower than the 0.5% expectation.

Since the technology sector has slipped the most this year, investors seem to have bought what they considered to be a sudden bargain after the CPI release.

However, even after the technology-led rally, which included the sector’s biggest weekly jump of the year, the is down 27.45% year to date. Conversely, the has retreated just 7.1%, and the fell 16.2%. Even the —which includes small caps, which also fall out of favor amid tightening—is only 16.1% lower for the year.

Also, among the S&P 500 sectors, is by far the worst performer, having shed 35.6% of its value while the sector also underperformed, sliding 23.4%.

So, investors vociferously cheered the sign of peaking inflation with a rush to increase risk. But it is unwise to rely on a single print.

Let’s see if the supply-demand balance warrants the current optimism.

Nasdaq Daily

The Nasdaq completed a small H&S. Notice that the volume rose with the rallies, demonstrating where participation lies, as the trend registered an ascending series of peaks and troughs.

While the more sensitive ROC has yet to rise above its previous peak, the RSI and MACD both provided bullish crosses. The price crossed above the 50 DMA but is below the 100 DMA and the 200 DMA.

Let’s take a step back and see if the picture remains consistent.

Nasdaq Weekly
Now, we realize that the bottom is just short-term, a correction within the medium-term downtrend framed within the falling channel.

As opposed to the daily volume, the weekly volume spiked with declines and dried up with rallies, demonstrating that there are more bears than bulls. The 50-week moving average (WMA) fell below the 100 WMA, but the price crossed above the 200 WMA after falling below it in Sep for the first time since 2010. I expect considerable volatility.

Trading Strategies

Conservative traders should wait until the short term realigns with the medium term.

Moderate traders would risk a long position if the price crosses the 100 DMA, then wait for a pullback demonstrating support above October highs.

Aggressive traders can commit to a long position, provided they accept the proportionately higher risk to reward of moving before confirmation and the rest of the market.

Trade Sample – Aggressive Long