Chart Of The Day: Nasdaq Rout Not Over Yet
2022.10.14 14:48
- Thursday’s rally was driven by short covering
- Several such bullish reversals have failed this year
- Strong CPI simply calls for more aggressive Fed hikes
After a sharp rebound in the aftermath of a hotter-than-expected U.S. report, the key question on investors’ minds will be whether there will be any further upside follow-through in the stock markets.
Judging by the numerous such short squeezes we have seen this year, the resumption of selling pressure is a strong possibility. That’s because, fundamentally, not a lot has changed. If anything, the bears have even more reason to step in after the stronger inflation data and at these slightly higher levels.
The and other U.S. index futures started Friday’s session higher during the Asian session, but at the time of writing in the early European trade, they were coming off their best levels. Nasdaq futures have returned to the former support zone between 11036 and 11357. The base of this range was low, which had been formed in June.
Nasdaq 100 Futures Daily Chart
The big bullish candles from Thursday may encourage some dip buyers to step in today and potentially scare away some more conservative bears.
However, if the bulls want to push the market higher and create a significant low here, they must clear the above resistance zone on today’s daily close. For confirmation, we need to see a higher high above 11730, the most recent high that preceded the latest drop.
That said, the longer-term trend is bearish, and I continue to expect the markets will struggle until something changes fundamentally. Despite yesterday’s sharp recovery, the bears are still in charge of the overall price action. But they must now wait for some form of confirmation to suggest the squeeze is over. Perhaps, it may be best to zoom in on the lower time frames and look for signs to tell Thursday’s sharp rebound was merely another bull trap.
While no one can or should rule out the possibility of further short-term strength, it remains difficult to make a strong bull case for stocks right now.
Following the stronger CPI report, it appears that the case for a fourth consecutive 75-basis point hike in September is pretty much sealed, although there are now talks that could even hike by 100 bps. This may mean stocks and should continue to struggle until something changes fundamentally. It is just that it has been a one-sided trade for so long, and a squeeze was inevitable.
Disclaimer: The author does not own any of the securities mentioned in this article.
