Federal Hall, Wall street, New York City, USA. Image source: ©Victoria Lipov © 123RF.com
The Nasdaq composite took a sharp dive yesterday as tech stocks continue to reel from growing inflation fears. The newly developing downtrend is likely to probe even lower in the near future as the global recovery heats up.
As can be seen on the 4H chart below, this downtrend is emerging from the Double Top pattern just above the psychologically significant resistance level at 14000.00. Moreover, the breakdown occurred from an Ascending Wedge pattern, making it an even more prominent bearish movement.
The price action went on to break down below the resistance-turned-support level at 13550.00, which represents yet another major bearish indication.
Notice that the initial breakdown (below the Wedge) was held back by the 100-day MA (in blue). Afterwards, the price action established a throwback to the lower end of the Wedge from below.
Once the downturn was renewed, the price action penetrated below 13550.00 and is currently testing the 200-day MA (in orange). This floating support represents the last potential turning point for the downtrend, making it a last resort for the bulls.
Unless a major rebound takes place immediately, the price of the Nasdaq may fall as low as the next major support at 12800.00, or even the 23.6 per cent Fibonacci retracement level at 12284.99, before the IXIC finds the necessary support.
At present, there doesn't seem to be any potential catalyst in sight that could prompt such a rebound.
IXIC 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
Growing investors' fears concerning the global trend of rapidly rising prices, particularly in the U.S., is weighing down heavily on the tech sector. Bearish pressure is ramping up despite the robust earnings season that was driving the Nasdaq higher only until recently.
Stocks are promptly losing their appeal as production costs are on the fast track to reaching growth rates that haven't been seen in over a decade. This process is accelerating ahead of the pivotal inflation data that is going to be posted this week.
Stocks face inflation risk in market with fewer reasons to rally https://t.co/hVaGqAWbFy pic.twitter.com/lp6hmWuzTf
— Bloomberg (@business) May 11, 2021
FED's massively accommodative policy stance ensures that liquidity levels would remain substantial at least until 2022, which would support inflation growth in the medium turn.
This trend can also be observed in the commodities market, as investors fleeing from the stocks bout are driving the price of gold higher.
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