Nasdaq 100 Technical: Potential bearish reversal looms

• Counter trend rebound hit the 15,140 resistance.
• A bearish reversal candlestick was sighted at the close of yesterday’s US session which suggests that the recent two weeks of rally is unlikely the start of a new impulsive bullish move sequence.
• The recent pull-back seen in the US 10-year Treasury yield has almost reached its upward-sloping 20-day moving average now acting as a support at around 4.55% that may lead to a continuation of the medium-term uptrend of the Treasury yield.
• The start of a potential impulsive bullish move in the US 10-year Treasury yield may ignite renewed downside pressure in the Nasdaq 100.

This is a follow-up analysis of our prior report, “Nasdaq 100 Technical: Potential counter trend rebound as 10-year UST yield retreated” published on 29 September 2023. Click here for a recap.

In the past two weeks, the price actions of the US Nas 100 Index (a proxy for the Nasdaq 100 futures) have indeed shaped the expected counter trend rebound from its 28 September 2023 swing low of 14,450 and hit the 15,140 resistance. This recent bounce has been accompanied by a pull-back of 26 basis points in the US Treasury 10-year yield right below a key medium-term resistance at the 4.90% level (printed an intraday high of 4.88% on 4 October) to yesterday, 10 October low of 4.62%.

Right now, there are several technical elements and intermarket analysis that suggest that the US Nas 100 Index may start to shape a bearish reversal at this juncture as the release of the key US CPI data for September looms ahead on Thursday, 12 October.

Current pull-back in US 10-year Treasury yield has almost reached its 20-day moving average

Fig 1: 10-year UST yield medium-term trend as of 11 Oct 2023 (Source: TradingView, click to enlarge chart)

The recent four-week of steep up move seen in the US 10-year Treasury yield from its 1 September 2023 low to 4 October 2023 high has retraced towards the upward-sloping 20-day moving average now acting as support at around 4.55%.

In addition, the daily RSI indicator has already exited its overbought zone without any prior bearish divergence condition and managed to hold above a key parallel ascending support at the 52 level which suggests that the medium-term upside momentum of price actions remains intact.

Hence, there is an increased odds that the pull-back on the US 10-year Treasury yield may have ended and a potential new impulsive up move sequence is around the corner within its ongoing medium-term and major uptrend phases.

Given its recent significant indirect correlation with the price action movements of the Nasdaq 100, a further potential uptick in the US 10-year Treasury yield is likely to lead to another wave of bearish movement in the Nasdaq 100 at least in the short to medium-term.

Daily bearish reversal candlestick sighted in the Nasdaq 100

Fig 2: US Nas 100 medium-term trend as of 11 Oct 2023 (Source: TradingView, click to enlarge chart)

The last two days of positive up move seen in the Nasdaq 100 have been reinforced by a relatively dovish Fedspeak out from several US Federal Reserve officials where the majority has implied that there is an increasing possibility that the Fed is almost near the end of the current interest rate hiking cycle and coupled with a positive news flow out from China; the media reported that top policymakers are considering raising its budget deficit for 2023 that implies new fiscal stimulus may be enacted soon to halt the current severe liquidity crunch faced by major Chinese property developers.

Interestingly, yesterday’s intraday gains of +1.3% in the Nasdaq 100 were trimmed by almost half towards the US closing and ended the session near the bottom of its intraday range as well as slightly above the 50-day moving average where its price actions have traded below it since 15 September 2023.

In terms of technical analysis utilizing Japanese candlesticks, yesterday’s price actions of the Nasdaq 100 have formed a daily “Shooting Star” bearish reversal candlestick that indicates a potential significant swift change of sentiment from positive to negative.

This set of price action behaviour suggests that market participants on the aggregate were likely not confident of maintaining a continuation of bullish bias on the Nasdaq 100 seen in the past two weeks that may lead to profit-taking activities soon which increases the odds of further weakness in the Nasdaq 100 at least in the short-term.

Watch the 15,355 key short-term resistance

Fig 3: US Nas 100 minor short-term trend as of 11 Oct 2023 (Source: TradingView, click to enlarge chart)

As seen in the 1-hour chart, yesterday’s push-up in the price action of the US Nas 100 Index (a proxy for the Nasdaq 100 futures) is now coming close to the medium-term descending trendline in place since 19 July 2023 high now acting as resistance at 15,355 which also coincides with the 76.4% Fibonacci retracement of the recent decline from 1 September 2023 high to 27 September 2023 low.

If the 15,355 key short-term pivotal resistance is not surpassed, the Index may see a dip to the near-term support zone of 15,100/15,050 (also the 50-day moving average) and a break below it exposes the next intermediate support at 14,920 (also the 20-day moving average).

On the other hand, a clearance above 15,355 invalidates the bearish reversal scenario to see the next immediate resistance coming in at 15,540 (minor swing high areas of 4/6/15 September 2023).

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