Nasdaq 100: Charging ahead or bracing for a bear market?

THE Nasdaq index was poised for a higher opening on Apr 11 after March’s Producer Price Index (PPI) reading fell short of estimates, providing some relief after Wednesday’s market sell-off. This sell-off was triggered by a faster-than-expected increase in prices of consumer goods and services. Wholesale prices recorded a 0.2 per cent rise in March, slightly below the forecast 0.3 per cent growth. Core CPI, excluding food and energy, also increased by 0.2 per cent, aligning with predictions. However, on an annual basis, wholesale prices surged by 2.1 per cent, marking the highest level since April 2023.

Economic updates revealed that initial jobless claims in the United States last week were lower than expected, indicating ongoing tightness in the labour market even as continued jobless claims saw a rise, indicating some individuals may require additional time to secure new employment. The US Department of Labor reported a seasonally adjusted decrease of 11,000 initial jobless claims to 211,000 for the week ended Apr 6. Meanwhile, continued jobless claims for the week ended Mar 30 increased by 28,000 to 1.817 million. Despite significant interest rate hikes by the Federal Reserve aimed at curbing inflation, the labour market remains resilient. Employment growth accelerated in March, as reflected in a drop in the unemployment rate from 3.9 per cent in February to 3.8 per cent.

Strong job market conditions, alongside persistent inflation, have led financial markets to revise expectations of the Fed’s initial interest rate cut from June to September. The CME’s FedWatch Tool indicates a 98 per cent probability that the Fed will maintain rates at its Apr 30 to May 1 meeting, with only a 2 per cent chance of a 25 basis point rate cut. Looking ahead, there is a leaning towards no rate cut in June, with a slight inclination towards a 50 basis point decrease by December.

Meanwhile, the technology-focused Nasdaq 100 index has been consolidating since early March, experiencing a 1.53 per cent single-day drawdown after reaching its all-time high on Mar 8. However, a strong rebound was observed on Mar 11, supported by the 50-day Simple Moving Average (SMA). Despite some volatility, the index has recovered from last week’s low at 17,875.75. The 1.55 per cent single drawdown on Apr 4 caused the price to drop out of the upward parallel channel, forming resistance for price re-entry into the channel. This also increased the challenge for the price to retest its all-time high resistance at 18,464.70 and minor resistance at 18,362. If the 18,000 level continues to hold, there could be a fresh move towards a new peak after breaking through the all-time high resistance. However, if the price drops below 18,000, the 50-day SMA serves as another area of possible support, followed by levels at 17,760 and 17,320 in case of further declines.

The writer is equities specialist at Phillip Securities