Nasdaq Bearish as Large Tech Stocks Slide

Nasdaq Bearish as Large Tech Stocks Slide
February 11, 2016

 
After hitting a high of 5,142 points on November 15th 2015, the tech-heavy Nasdaq Composite Index declined sharply to touch a low of 4,212 on February 8th, 2015.

Market analysts attribute the decline to the uncertainty in the US economy and the unabated slowdown in the Chinese economy. However, before coming to a conclusion for ourselves, we should note that the Fed announced a rate hike in December. This effectively ended a period of near zero interest rates, which as you know – existed for about eight years.

Historically, a Fed rate hike has always caused a steep decline in the market for several months, and this decline is usually followed by a period of range bound movement. This time, the stock market saw a big rally. Thus, going by the empirical data, we can expect the Nasdaq Composite to continue its downtrend for the next few months. In fact, several big companies listed in the Nasdaq stock exchange missed earnings estimates in the final quarter of 2015. These included Amazon, Yahoo, Accenture, Tesla, IBM, Statoil ASA, Roper Technologies, Inc., and Salesforce.com.

Furthermore, mixed data from the US continues to raise concerns about the economic recovery. The jobs data released last week indicated that the US economy added 151,000 jobs in January. However, it was far below the analysts’ estimates of 190,000. Surprisingly, wages rose by 0.5%, thereby stirring fears of a recession. Moreover, the US trade deficit widened by 2.7% to $43.4 billion in December 2015.

In the US, crude oil inventory data is watched closely by almost all market participants. A rise in the crude oil inventory is generally perceived as a decline in demand, or a slowdown of the economy. Similarly, a decline in the crude oil inventory is always considered as a positive signal for the economy. The crude oil inventory in the US rose by 8.4 million barrels to 494.9 million barrels in January. The inventory is the highest since 1930, and this continues to put pressure on crude oil prices. The equity market is expected to rally only when crude starts trading firmly above the $30 level.

The price of gold, which is considered a safe haven in times of market turmoil, had risen by more than $100 per troy ounce in the past one month. The April futures price of the yellow metal broke above the $1,200 level for the first time since June. A rise in the gold price signals that the US economy is struggling and a rise in inflation is on the horizon.

Finally, the CBOE Volatility index (VIX), which is widely accepted as the best gauge of fear in the market, hit a high of 27.72 in January, 2016. All these factors point to a further decline of the Nasdaq index.

Technically, as shown in the image below, the Nasdaq Composite index has formed a double top pattern on the chart.
Nasdaq Technical Analysis - Trading Chart

Thus, it is imperative that the index is in a long-term decline. The major resistance levels are 4603 and 4824 respectively. Major support exists at 4120 levels. The index is expected to temporarily bounce back t0 4500 levels before resuming its downward journey.

Trading Tip: Binary options traders are recommended to purchase a put options contract with a March expiry. The suggested strike price for the put option contract is 4500.

Avatar

Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


Related Articles

Soft Q2 2017 Revenue and EPS View Turns Cisco Bearish

  Better than anticipated fiscal 2017 first-quarter results coupled with a 190 basis point increase in the non-GAAP gross margin

GoPro Turns Bullish on Impressive 1Q17 Rev. Outlook

  Earlier this month, action camera manufacturer Gopro Inc (NASDAQ: GPRO) reported fiscal 2016 fourth-quarter earnings that exceeded analysts’ estimates.

AMD Shares Surge On Announcement of Chinese JV

  The shares of chip maker Advanced Micro Devices, Inc. (NASDAQ:AMD) increased 52.29% to $3.99 on Friday. The main reason