The Nasdaq led Wall Street higher as it put aside Fed Chair Jerome Powell pumping up the hawkish mantra and focused on positive data to finish the cash session with solid gains.
The Nasdaq ended with a 2.76% rally, although futures are pointing to a soft start to the upcoming day session. There are a series of descending trend lines above and below the price which may suggest a bear market is unfolding. The snap move below 12700 went through a previous low and one of the descending trend lines. That might now be an area of resistance just above 12700 as there is a topside descending trend line near there. Support could be at the recent low of 11689 or the at the low trend line, currently at 11200.
Trade accordingly with your risk
U.S. stocks had another ugly day on Thursday, amid risk-off mood and capitulation on Wall Street. After moving between small gains and losses in morning trading, the tug of war resolved to the downside, with all three major equity averages registering their weakest close for the year.
When it was all said and done, the S&P 500 declined 0.13% to 3,930, recovering from a 1.8% drop that had the index flirting with bear market, a period of prolonged declines in which an asset has fallen 20% or more from a recent high. Although a bear market does not in itself predict future returns, it can certainly increase investor pessimism and further reduce risk appetite, especially if the condition afflicts the world’s most important benchmark.
As for the catalysts, the drivers remain the same: stagflation and Fed jitters. Traders are increasingly convinced that the inflationary environment will require a more forceful policy response, which may lead to a recession, a dreadful scenario for the U.S. consumer and, of course, for corporate earnings. Whether the excessive pessimism is justified is irrelevant, what matters now is that traders are convinced that trouble is coming and are acting on that belief by buying downside protection and shying away from stocks.
With no relevant U.S. economic data or key Fedspeak for the next couple of days, sentiment will remain fragile, preventing any meaningful rebound in risk-assets.
For the 20% decline condition to be met, the index will need to break below the 3,855 area. By looking at the daily chart below, we can see why this is problematic: just around those levels, we have a key technical support corresponding to the March 25, 2020 swing low. If this floor were to be taken out, sellers could accelerate the move lower, with the next notable barrier at 3,800, followed by 3,725.
On the flip side, if dip buyers return to take advantage of the oversold condition and spark a bullish reversal, the first resistance to take into consideration comes in at 3,980, and 4,060 thereafter.
The Nasdaq 100 has long been the leader with the market darlings running the show in this index. I’m referring to the group of stocks known as FANMAG or FAANG, and throw in TSLA as well. These stocks (Facebook, Apple, Netflix, Microsoft, Amazon, Google, and Tesla) make up nearly half of the NDX’s composition.
As these stocks go goes the Nasdaq 100 and by extension the entire U.S. market, and the world for that matter given the U.S. stock market alone makes up more than half the entire global market cap. When you start looking at it this way, watching how this highly influential bunch of stocks behaves is crucial to better understanding how the market might perform.
For the longest time price was contained neatly within the channel’s two lines until price escaped its gravity and started to trade above it back in July 2020. Once broken it was tested and validated as support twice within the few months following the breakout. It was once again validated as support here not too long ago during the Feb/March meltdown.
But with the close of May we saw a monthly closing print below the lows of the Feb/March tests, and on that price is once again trading back inside the channel for the first time since the middle of 2020. The overthrow is over.
Why does this matter so much? Because when a channel or range structure is broken and then price reverses back inside of it, it signals a significant likelihood that we will see the other side of the structure tested, and possibly exceeded. Looking at the best case should this scenario play out, a decline to around 10k could be in store in the months ahead.
AUD/USD largely tracks the weakness in commodity bloc currencies as it trades to a fresh yearly low (0.6945), and swings in investor confidence may influence the exchange rate as the US stock market pushes to fresh yearly lows.
As a result, the recent series of lower highs and lows may push AUD/USD towards the July 2020 low (0.6877) amid the deterioration in risk appetite, and it remains to be seen if fresh data prints coming out of the US economy will influence the exchange rate as the Consumer Price Index (CPI) is anticipated to downtick for the first time since August.
AUD/USD may face a further decline over the coming days as it clears the January low (0.6968), and the exchange rate may attempt to test the July 2020 low (0.6877) as it snaps the opening range for May.
AUD/USD clears the January low (0.6968) as it extends the series of lower highs and lows from last week, with a break/close below the 0.6940area raising the scope for a test of the July 2020 low (0.6877) as it snaps the opening range for May.
Next area of interest comes in around 0.6770 to 0.6820 , with a break of the June 2020 low (0.6648) bringing the 0.6510 to 0.6520 area on the radar.
However, lack of momentum to break/close below the 0.6940area may generate a rebound in AUD/USD as the recent decline in the exchange rate fails to push the Relative Strength Index (RSI) into oversold territory, with a move above the 0.7070 to 0.7090 region bringing around 0.7130 to 0.7180 back on the radar.
Trade accordingly with your risk
After making a 7-year high a fortnight ago, it pulled back to make a low at 134.78, above the prior low of 134.30. These levels may provide support. The day of that most recent low, a bullish Top Candlestick was observed and could signal the resumption of the ascending trend. Resistance might be at the pivot points and previous highs at 137.50, 138.00, 139.02, 140.00 and 141.06.