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NQ100_m forms “golden cross”

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.

NQ100_m forms “golden cross”

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”:

  • 22 May 2020: NQ100_m climbed by 76.2% before notching its highest-ever closing price on December 27, 2021 – the current record high.
  • 2 April 2019: NQ100_m advanced by another 29.6% before claiming a pre-pandemic high in February 2020. Then as we all know, the Covid-19 pandemic triggered lockdowns around the world which also saw market fears spike, sending the NQ100_m index careening below its 200-day SMA.

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:

  • April 2019 episode: prior Fed rate hikes coming into 2019 had resulted in US rates peaking at 2.5% (about half of today’s 4.75%) and the Fed would eventually start cutting interest rates later that same year.
  • May 2020 episode: US interest rates were at a record low of near 0%, to help cushion the economic impact from Covid-19.


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:

  • March 10th: US nonfarm payrolls (NFP) report a.k.a. jobs data
  • March 14th: US consumer price index (CPI) a.k.a. inflation data
  • March 22nd: FOMC rate decision a.k.a. Fed meeting

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.



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