Nasdaq breaks support as macro background darkens
Equity investors seem reluctant to buy anything in this macro environment where inflation is skyrocketing, global growth is waning and central banks are tightening policy.
Attitude towards shares in the stock market remains negative. And not just stocks. You can add bonds, cryptocurrencies, metals and foreign currencies to this list. There was some optimism when European governments announced various stimulus measures to help deal with rising energy prices. But investors quickly realized that this only added to the inflationary pressures that central banks were desperately trying to fight. Investors seem reluctant to buy anything in this macro environment where inflation is skyrocketing, global economic growth is waning and central banks are tightening policy. Something fundamentally needs to change before we see the start of a serious recovery.
Meanwhile, Chinese data turned out to be weaker, this time in trade data, underscoring the view that the world’s second-largest economy is weakening more than expected. Both exports and imports were significantly lower than expected, indicating weakening domestic and external demand.
In the US, the latest ISM service data shows the economy is still strong enough to justify more aggressive increases.
Indeed, it is the Fed, which continues to aggressively raise interest rates, that is the main source of pressure on global risky assets. Betting that the Fed will triple rates in September has risen sharply since Fed Chairman Jerome Powell spoke at a Jackson Hole symposium a few weeks ago. The ECB’s bellicose rhetoric has also intensified as Europe grapples with an energy crisis and record inflation. In August, inflation in the euro area reached a record high of 9.1%, while in Germany inflation reached its highest level in 40 years. Several ECB policymakers have urged the central bank to speed up the pace of rate hikes from an initial 50 basis point hike in July to a three-quarter point hike at tomorrow’s meeting.
The fact that we’re in a bear market, where stock traders are happier to sell up than to buy down, doesn’t help either.
After a sell-off on Tuesday, the Nasdaq closed below the 61.8% Fibonacci retracement of the rally that started in June. Support around 12050 has also been broken. Thus, the path of least resistance remains in the red.
NASDAQ Daily Chart (US100 CFD)
Source: Tradingview, Stone X
From there, we could see the Nasdaq begin to break the 12,000 mark and fall towards 11,610, a 78.6% Fibonacci retracement level. Although we are quite far from the June low (11036), I would not rule out that we can see this level again in the next couple of weeks.
At this stage, there are not many technical or even fundamental signs that could calm the bulls. So expect more losses in the stock market.
Text: Fawad Razaqzada, FOREX.com » Official site
Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.