NASDAQ 100 OUTLOOK:
- The Nasdaq 100 tumbles 2.48% on Tuesday as the roller coaster trading atmosphere continues on Wall Street amid Fed jitters
- Growth stocks bear the brunt of the sell-off, with ARKK down 3.67% at the market close
- Investors’ attention will turn to the FOMC monetary policy decision on Wednesday
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It was another remarkable and volatile day on Wall Street following Monday’s stunning turnaround. While stocks fell sharply in early trading, they managed to finish the day off their lows, as cautious sentiment prevailed and investors remained reluctant to take on large bullish positions on risk assets ahead of the FOMC decision on Wednesday, a high impact event for financial markets.
At the closing bell, the S&P 500 retreated 1.22% to 4,356 after tumbling as much as 2.8% in the morning. Meanwhile, the Nasdaq 100 plunged 2.48% to 14,149, weighed by a sharp pullback in tech mega-caps such as Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) to name a few.
The more speculative names also took a beating, with growth stocks and funds tracking this factor down across the board. One representative case was ARK Innovation (ARKK), Cathie Wood’s flagship ETF. At the close, the fund sunk 3.67%, racking up a 25% loss in 2022 amid the continued exodus from the long-duration and the rate-sensitive trade. In my top trading idea for the first quarter, I argued that ARKK could suffer a brutal decline as a result of the Fed hawkish pivot. Although the sell-off has been front–loaded, the worst may not be over yet. Once policymakers begin to withdraw stimulus more assertively to control inflation, we could see further weakness in the growth universe as valuations compress.
Turning our attention to near-term catalysts, Wall Street will continue to focus on the earnings season to gauge the strength of corporate America in the face of slowing economic activity and mounting price pressures, but tomorrow all eyes will be on the Federal Reserve’s monetary policy announcement.
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Investors expect the Fed to stand pat at its January meeting, but the institution may offer valuable insight into its normalization cycle, including the timing of the liftoff and the start of the balance sheet reduction. With headline CPI at a four-decade high, the bank is likely to signal it will stay the course on its tightening plans despite recent market turbulence, but may attempt to calm nerves with a less hawkish narrative. Any hint that the tightening process will not be as aggressive as currently priced in could spark a temporary relief rally in the major equity indices.
NASDAQ 100 TECHNICAL ANALYSIS
The recent correction has created a fairly bearish picture for the Nasdaq 100, but the index may have established a near-term bottom yesterday near the 13,725 area. That said, if price manages to hold above that level in the coming days, buying interest could slowly return and pave the way for a climb above the 14,450 technical resistance. If this scenario plays out, the 14,800 zone would become the immediate upside target.
On the flip side, if sellers retake control of the market, trigger a retest of 13,725 and eventually push the tech benchmark decisively below this key floor, all bets are off. Under this hypothesis, we could see a retreat towards the May 2021 low around the 13,000 psychological level.
NASDAQ 100 TECHNICAL CHART
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—Written by Diego Colman, Contributor