Buy the dip? Nasdaq comeback gives hope to the bulls
The dollar continues to range trade with volatility in the FX space relatively low, even as US bond yields hit levels not seen in many months. All the excitement has been in US equity markets and particularly the rotation out of riskier assets into areas more closely attached to a strong recovery, like value stocks.
Investors have shunned high-growth companies that were all the rage at the height of the pandemic, in favour of banks, energy and major industrial groups.
The tech-focused Nasdaq 100 has been at the epicentre of the selloff with the index suffering its worst debut in a new year since the fears of a slowdown in China sent shockwaves across global financial markets six years ago.
Surging bond yields worry investors
The tech tumble has come as US government bond yields have rocketed to levels not seen in nearly two years as concerns have mounted that the Federal Reserve would need to raise rates more aggressively than was previously expected to tame hot inflation.
No doubt, tomorrow’s release of the final print of last year’s US CPI will sharpen minds around this issue even more.
We also get Fed Chair Powell’s hearing this afternoon in front of the Senate which will be an opportunity to gauge the aggressiveness of the Fed’s tightening cycle and could see the bond curve font-load hikes further.
Yesterday saw quite a remarkable about-turn in the US stock markets after the Nasdaq plunged over 2.7% in the first hour of trading. Rotation out of tech and into value stocks was eventually overturned and a strong reversal indicator (hammer candlestick) was posted on the broader S&P500 and the Nasdaq.
Dip buyers certainly rescued the tech-laden Nasdaq 100 from a fifth straight loss.
According to an estimate by J.P. Morgan, retail buyers snapped up more than $1 billion of stocks yesterday, an amount that ranked in the 93rd percentile in historic data on the group’s equity activity.
Technically, prices sold off through the widely watched 100-day simple moving average last week. This has been a reliable marker of support through the pandemic so Friday’s weak close was a bearish signal.
Yesterday’s selloff also broke down through the recent December lows around 15,510 and two Fib levels (50% and 38.2%) of the October/November move. The remarkable finish saw prices close above these levels (15,578.2 and 15,296.5 respectively) so this area will act as strong support.
Bulls will want to consolidate above the September highs around 15,700 to steady the ship and calm the nerves.