THE Nasdaq-100 Index was up 25.46 per cent as at Dec 19, despite a correction of 3.56 per cent on Dec 18.
The US stock market has seen stellar performance in recent weeks leading up to the December Federal Reserve meeting. The overall uptrend momentum for the Nasdaq index remains intact.
As expected, the Federal Reserve reduced interest rates by 25 basis points (bps) in its December meeting. However, market volatility and the correction across all three major US indices stemmed from a reduction in expected rate cuts for 2025, from an initial forecast of four 25bps cuts to potentially just two.
With US president-elect Donald Trump’s inauguration in January 2025, inflation in the US is expected to remain sticky, influenced by his proposed policies, especially trade tariffs against China. Additionally, more accommodative economic policies to support the economy might also hinder the progress in tackling inflation, as they are likely to fuel higher consumer demand expectations in the US market.
Bullish scenario
Nasdaq has maintained a bullish momentum since its August rebound, and stayed above the uptrend line, despite corrections in mid-November and mid-December. If the index stays above the 50-day simple moving average (SMA) line, it might see a rebound off the support zone to continue to test the all-time highs leading into January 2025.
The support zone is defined by the 50-day SMA level of 20,805 and the Fibonacci 0.50 level of 20,744. The upside potential will face resistance at 21,525 and 22,000 levels which correspond to the Fibonacci 0.618 level and the psychological barrier respectively.
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Bearish scenario
However, the index’s bullish momentum seems to be weakening with increased corrections as investors potentially take profits following the Fed’s change in stance. Previously, expectations of such profit taking were to occur in January 2025, following Trump’s inauguration, for tax purposes, rather than in the 2024 financial year.
In the post-December Fed meeting correction, if the 50-day SMA is broken, the next support zone would be between the 100-day SMA at 20,074 and the Fibonacci 0.382 level at 19,963.
For the uptrend to reverse, the index would have to break below the previous low seen in August 2024, around the 17,435 level which would represent a decline of around 18 per cent. A drop of this magnitude in December appears unlikely.
The writer is dealing manager, Phillip Securities
