The NQ100_m’s 50-day simple moving average (SMA) has now moved above its 200-day day counterpart.
This technical event traditionally sends a bullish signal to traders, suggesting that there are more gains ahead.
However, this latest iteration is likely to succumb to fundamental drivers over the course of this month that are set to have a greater influence rather than technical signs.
First, a look back at recent history.
Here’s how the NQ100_m fared following the most recent two “golden crosses”:
Note that, following both instances of a “golden cross” on the daily charts, the NQ100_m then duly surged to fresh record highs!
But a fresh record high over the near-term following this latest “golden cross” is almost unthinkable in light of the wildly different macro-economic environment at present compared to recent years.
And here’s the biggest difference …
The US Federal Reserve has been raising interest rates at the fastest pace since the 1980s in order to bring multi-decade high inflation back closer towards the central bank’s 2% target!
Today, the Fed’s policy stance is in stark contrast to the policy outlooks during the prior two “golden crosses” for the NQ100:
How do Fed rate hikes impact the NQ100_m?
Firstly, note that the NQ100_m is based on the benchmark Nasdaq 100 index, which is used to track the overall performance of US tech stocks such as Apple, Amazon, and Alphabet.
And generally, tech stocks do not like the prospects of interest rates moving higher.
This is because higher interest rates translate into higher repayments on loans. And many tech stocks rely on borrowed money to fuel the company’s growth.
With more money needed in the future to repay its borrowings, that’s less money that the company can use to grow its business, or to be kept as profits. And shareholders/investors would rather see those profits sooner rather than later.
Hence, given the soured earnings prospects for tech stocks in light of US rates being pushed even higher, no surprise that the Nasdaq 100 remains some 26% below its record high posted back in November 2021.
What’s next after golden cross?
If such a bullish technical event does happen for the NQ100_m, equity bulls (those hoping stocks will move higher) will be looking to eventually revisit Monday’s (March 6th, 2023) intraday high of 12471.4.
However, as mentioned earlier in this article, be mindful that any bullish technical signals may be lost amidst the incoming macro events:
If markets are shown in the days ahead that US hiring remains resilient and inflation remains stubbornly elevated, that could pave the way for the Fed to revert back to a larger-than 25bps hike at its meeting later in March.
Though the NQ100_m may not wait until then to trigger its next selloff.
In such a risk-off scenario, expect bears (those hoping prices will fall) to test support around the 11,923 mark, where resides the 23.6% Fibonacci level from its November 2021-October 2022 drop. Also note that the 200-day and 50-day SMAs are lurking nearby too.
This congregation of technical indicators could form a strong support region for the NQ100_m, barring an utter capitulation in risk sentiment over the course of this month.
Should markets increasingly expect an actual Fed rate cut in Q3 2023, or even an official pause on the Fed rate-hiking cycle at its next policy meeting in May (52% chance of such an occurrence), that should help the Nasdaq 100 officially lay claim to a bull market.
23 March 12:10
Governments and central banks across major economies are scrambling to limit the knock-on effects from the rapid collapse of Silicon Valley Bank (SVB), a key financier of the tech and startup ecosystem around the world.
13 March 11:19
At the time of writing, the futures contracts for the S&P 500 are extending February’s declines into this month. At the time of writing, the benchmark index for US stock markets has gone below the widely-watched 100-day and 200-day simple moving averages (SMA), having earlier already broken below the uptrend line from October’s trough.
2 March 11:05
Tech stocks have taken the latest FOMC minutes in its stride, despite already having dropped considerably over the past week over fears of a more-hawkish-than-expected Federal Reserve.
23 February 10:53
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