NASDAQ 100 OUTLOOK:

• U.S. shares sink at first of the week amid risk-off temper on elevated geopolitical tensions stemming from the continued battle in Ukraine
• The Nasdaq 100 breaches help and plummets 3.75% to 13,319, rising the probability of a retest of the 2022 low
• Deteriorating investor sentiment on stagflation fears could stop a significant restoration in equities within the close to time period

Most learn: Dow Jones, Nasdaq 100, S&P 500 Forecast – The Relative Power Play

Final week introduced nothing however turmoil to Wall Road. Though the February jobs report launched on Friday was undeniably sturdy and inspiring thanks partly to the speedy decline in COVID-19 circumstances, traders took little consolation within the information, as the continued disaster in Japanese Europe occupied everybody’s thoughts.

In the beginning of this week, the scenario isn’t any higher, the truth is, the temper is quickly souringwith shares down throughout the board. On this context, the Nasdaq 100 plummeted 3.75% to 13,319 on Monday amid heavy promoting exercise within the tech sector, posting its greatest drop since early final month and plunging into bear market, a scenario by which the underlying asset has fallen 20% or extra from a current excessive.

Russia’s invasion of Ukraine has triggered an enormous rally within the commodities house, particularly oil, because the forceful sanctions imposed on Moscow for its aggression have elevated the geopolitical threat premium and begun to disrupt some world commerce. Towards this backdrop, WTI and Brent have risen by roughly 25% in March alone and are buying and selling at their highest stage since 2008. Whereas it’s not but time to panic, it is very important perceive that present occasions are more likely to speed up inflationary pressures and weigh on financial exercisethrough the sentiment channel and by way of demand destruction stemming from larger uncooked materials prices.

Normally, excessive inflation coupled with weak GDP development is a foul mixture for equities and, after all, an ideal recipe for volatility, however the issue will increase exponentially if prevailing macrofinancial circumstances result in stagflation, an setting of surging client costs and flat or falling output that tends to be excessively detrimental to company earnings.

Associated: What Belongings are Most Impacted by Russia’s Invasion of Ukraine?

Right now, the U.S. financial system stays on good footing and appears set to develop above potential in 2022 (3.2%), in response to most forecasts, however the outlook might rapidly deteriorate if the battle in Ukraine drags on and escalates right into a broader regional confrontation involving NATO. It isn’t attainable to know with certainty how the disaster will unfold, however merchants needs to be ready for all situations. On that notice, it is very important level out that Kiev and Moscow concluded their third spherical of talks on Monday, however have been unable to achieve a truce/ceasefire settlement, with President Putin digging in and doubling down on his outrageous demands. For context, Putin needs Ukraine todemilitarize, modify its structure to enshrine NATO neutrality, acknowledge Crimea as Russian territory, and acknowledge the separatist republics of Donetsk and Lugansk as impartial states. These are all non-starter phrases for Ukraine.

In any case, I nonetheless imagine cooler heads will prevail and army hostilities will ease quickly a method or one other, so I stay cautiously bullish on equities in a medium-term horizon, particularly because the battle has prompted a dovish reassessment by central banks (Fed, ECB).

Nevertheless, I additionally acknowledge that the scenario is fluid, and that any miscalculation can exacerbate the disaster, so I’d shun excessive beta shares in cyclical sectors and deal with high quality and defensive performs for now, at the very least till the mud settles. On the similar time, I’d be inclined to extend publicity to power, metals and agricultural commodities given their constructive profile (USO, XOP, WEAT, DBB, DBA look enticing for tactical performs). The latter commerce can carry out effectively if present or new sanctions on Russia curtail its exports dramatically, exacerbating supply-demand imbalances for uncooked supplies (Russia is a commodity powerhouse)

Turning our consideration to the Nasdaq 100, the index has formally entered bear market as talked about earlier than. That mentioned, the technical image just isn’t fairly for the tech benchmark, particularly after the growth of a dying cross on the every day chart final week. With sentiment extraordinarily fragile and elevated market volatility, dip consumers can be reluctant to step in to select up threat belongings regardless of depressed costs. This will likely go away the Nasdaq 100 in a precarious place and weak to a retest of the 2022 low within the very close to time period.

Nevertheless, it is very important underscore a important level: if the army battle in Japanese Europe de-escalates and sentiment improves, we may even see a livid rally within the Nasdaq 100 contemplating how a lot it has fallen in 2022 and its oversold situation. Within the occasion of a bullish reversal, resistance is seen at 13,750 after which at 14,000. If value manages to clear these hurdles, the following upside goal seems round 14,453, the 38.2% Fibonacci retracement of the November 2021/February 2022 decline.

NASDAQ 100 TECHNICAL CHART

Nasdaq 100 (NDX) chart ready in TradingView

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—Written by Diego Colman, Contributor