Nasdaq 100 forms death cross as the fear and greed index slips

  • May 8, 2022

The Nasdaq 100 index has been in a spectacular meltdown as investors worry about the rising interest rates and slowing growth. The index is trading at $12,693, which is close to the lowest level since March 2021. It has fallen by more than 24% from its highest level this year, meaning that it has moved to a bear market.

Don’t fight the Fed

The Nasdaq 100 index has declined sharply in the past few weeks as some of its biggest constituents crash. For example, Apple shares have retreated by almost 10% in the past three months while Amazon has dropped by 27% in the same period. Netflix and Teladoc have declined by over 55% in the same period. 

A closer look at the Nasdaq 100 constituents have all fallen by over 20% in the past few months. As a result, there are concerns about whether the bubble in the tech sector may have burst. Besides, most companies are still trading at extreme valuations.

The main driver for the Nasdaq 100 index weakness is the Federal Reserve and its policy to hike interest rates. In its meeting last week, the bank decided to hike rates by 0.50%, the biggest increase since 2000. It also signaled that it will start implementing its quantitative tightening policy.

As a result, the idea is that if the Nasdaq index did well in a period of low-interest rates, then it will underperform when the Fed gets more aggressive. 

The collapse of the index has also happened at a time when the fear and greed index has moved to the fear zone. According to CNN Money, it is currently at 31, meaning that investors are fearful about the market. 

Another reason is that earnings have been a bit disappointing. According to FactSet, while revenue growth has been strong, companies are publishing the weakest earnings growth since Q4 2020.

Some of the top companies to watch this week will be Novavax, SmileDirectClub, Lemonade, Clover Health, Coty, and Madison Square Garden.

Nasdaq 100 index forecast

The Nasdaq 100 index has been in a strong bearish trend in the past few months. On the daily chart, it has managed to move below the important support at $13,032, which was the lowest level on February 25th and March 15th. A closer look also shows that the index has invalidated a double-bottom pattern. It has also formed a death cross pattern when the 200-day and 50-day moving averages cross. Therefore, the index will likely keep falling as bears target the next key support at $12,000.

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