Nasdaq 100 - NQ1! follows through with a relief rally
A week ago, we abruptly warned investors that the stock market might be positioning itself for a significant bear market rally in the short term. We also clarified that we expected this move to range between 5-10%. Since then, the Nasdaq index has risen more than 5%. Currently, NQ1! (continuous futures) trades near 12 440 USD. We remain bearish in the medium/long-term; however, in the short-term, we think the index might continue higher and possibly test the resistance in the vicinity of 13 000 USD. This short-term view is supported mainly by technical factors.
Meanwhile, fundamental factors continue to stay bearish. Higher interest rates, economic tightening, and looming recession pose a threat to the U.S. economy. Indeed, we think the rally might be put to an end if the FED follows through with the rumored rate hike on 27the July 2022. That would further pressure the U.S. economy, which is already at a weak point.
In our opinion, the bear market rally's presence is also indicated by the enormous magnitude of moves across various stocks. Historically, bear market rallies tended to perform very well, often in double digits. That, in return, often led to confusing market participants who would later feed the cycle of buying and selling. Because of that, we think it is premature to say that the bear market is over.
Illustration 1.01
The bullish breakout occurred, further bolstering the bullish case in the short term.
Technical analysis - daily time frame
RSI, MACD, and Stochastic are all bullish. The same applies to DM+ and DM-. The ADX contains a relatively low value, which indicates that the trend is weak. Overall, the daily time frame is bullish but with a weak trend.
Illustration 1.02
The chart shows simple support and resistance lines.
Technical analysis - weekly time frame
RSI is bullish. MACD performed a bullish crossover. Stochastic reversed to the upside. DM+ and DM- remain bearish. Overall, the weekly time frame is slightly bullish.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Meanwhile, fundamental factors continue to stay bearish. Higher interest rates, economic tightening, and looming recession pose a threat to the U.S. economy. Indeed, we think the rally might be put to an end if the FED follows through with the rumored rate hike on 27the July 2022. That would further pressure the U.S. economy, which is already at a weak point.
In our opinion, the bear market rally's presence is also indicated by the enormous magnitude of moves across various stocks. Historically, bear market rallies tended to perform very well, often in double digits. That, in return, often led to confusing market participants who would later feed the cycle of buying and selling. Because of that, we think it is premature to say that the bear market is over.
Illustration 1.01
Technical analysis - daily time frame
RSI, MACD, and Stochastic are all bullish. The same applies to DM+ and DM-. The ADX contains a relatively low value, which indicates that the trend is weak. Overall, the daily time frame is bullish but with a weak trend.
Illustration 1.02
Technical analysis - weekly time frame
RSI is bullish. MACD performed a bullish crossover. Stochastic reversed to the upside. DM+ and DM- remain bearish. Overall, the weekly time frame is slightly bullish.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Trade active:
We are growing increasingly anxious as the FED meeting is approaching. With the FED expected to raise interest rates by at least 50bps, we think the rally might run short on time. We will monitor the market action very closely, and stay on the sidelines until the FED decision. The retracement below the immediate support/resistance will be bearish and can be utilized as short position re-entry (with a tight stop-loss above the level).
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