Nasdaq 100 forecast: Markets remain vulnerable despite BoJ pushback

After starting the day well in the green, the major US indices were coming under a bit of pressure again at the time of writing, with investors unable to shake off the recent turmoil impacting financial markets. For now, the Nasdaq 100 forecast remains mildly bearish after the recent breakdown. More evidence of a bottom is needed to excite the bulls again even if there is a sense of calmness observed in price action over the past two days or so.

Stocks stage relief rally but remain vulnerable

It has all been about Japan and its central bank dominating the headlines and markets over the past week or so. On Wednesday, global indices staged a relief bounce, following on from a big recovery in Japanese stocks after a top BoJ official pushed back on the central bank’s hawkish stance from last week. Also supporting risk appetite slightly was the lack of any major bearish news and a quiet economic calendar. For the same reason, investors were not in a hurry to buy the dip. They were trying to make a more sober assessment of the events over the past week or so, figuring out which segments of the markets would be least impacted by the carry trade unwind and whether to re-open their trades in light of the BoJ’s pushback. Some were wondering whether there was an overreaction to the BoJ’s larger than expected policy tightening last week. Overall, sentiment remained cagey, and more evidence was needed to suggest the worst of the selling is over. Not many people were confident to buy this latest dip, especially with US CPI looming next week. Trades were also awaiting a clear bullish reversal signal on the indices to confirm the market has formed at least a temporary low.

BoJ re-assurance triggers relief

The Bank of Japan’s Deputy Governor Shinichi Uchida gave investors a big reason to at least slow the unwinding of carry trades, if not put them back on. This helped to ease pressure on the global markets, and we saw major indices rebound strongly, led by Japan. Uchida said that the central bank “won’t raise rates when markets are unstable” and that Japan’s monetary “policy path will obviously change if market volatility view on risks change.”

The reassurance from the BoJ followed wild swings across financial markets over the past week. Benchmark stock indexes plunged before bouncing back, although not quite to the same levels they were trading pre-BoJ meeting. This volatility was intensified by expectations of more aggressive rate cuts by the Federal Reserve, owing to weakness in US data. This has triggered a sharp unwinding of the popular yen-funded carry trades. A lot of these trades involved buying of US tech stocks, which is why the Nasdaq has been particularly hit hard.

Nasdaq 100 forecast: Technical analysis

Source: TradingView.com

The prior bullish technical Nasdaq 100 forecast became invalided with the major US indices breaking below key support levels in recent days. This recovery from short-term oversold levels should therefore be treated with extra caution as it could prove to be a bull trap this time. Indeed, the Nasdaq was testing a key broken technical area between 18,335 to 18,585 (area shaded in orange on the chart), a region which had previously provided support for the market. Now that we are below it, some trapped bullish traders would undoubtedly be using the opportunity to exit their trades, while the bears might be looking for shorting opportunities. That being said, the Nasdaq 100 has not broken below its 200-day average on a closing basis yet despite an intraday plunge beneath it on Monday, implying that the long-term bullish trend is still intact despite the sharp selling recently. This should also keep the bears on their toes, especially amid a lack of any further bearish news or market events. So, watch for support to potentially hold around the 17,800-18,000 area (green shading on the chart), where the 200-day MA meets prior support and resistance. A daily close below this range, however, could expose the Nasdaq for a deeper correction.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.