Nasdaq 100 Technical: Potential counter trend rebound as 10-year UST yield retreated

• The 10-week decline of the Nasdaq 100 has almost reached a key medium-term support of 14,300.
• The rising 10-year US Treasury yield is a significant factor that led to the recent decline of the Nasdaq 100.
• A daily bearish “Shooting Star” candlestick sighted yesterday on the 10-year US Treasury yield may trigger a counter trend rebound in the Nasdaq 100.

This is a follow-up analysis of our prior report, “Nasdaq 100 Technical: Slipped back below 50-day moving average as Fed FOMC looms” published on 19 September 2023. Click here for a recap.

The price actions of the US Nas 100 Index (a proxy for the Nasdaq 100 futures) have indeed shaped the expected decline and broke below the short-term support of 14,750. Thereafter, it continued to tumble and printed an intraday low of 14,445 on Wednesday, 29 September.

The Index has now recorded a September month-to-date decline of -4.92% at this time of the writing which is on track for the worst monthly performance since December 2022.

In the lens of technical analysis, price actions do not move in a vertical direction as there tend to be several episodes of counter trend/mean reversion oscillations that go against a longer-term trending phase due to potential profit-taking activities, and reassessment of the current situation by market participants as key time periods approach such as month-end and quarterly-end closings (today is month-end as well as third quarter-end).

10-year US Treasury yield has shaped a daily bearish reversal candlestick

Fig 1: US Nas 100 medium-term trend with 10-year UST yield as of 29 Sep 2023 (Source: TradingView, click to enlarge chart)

Since 19 July 2023, the decline seen in the US Nas 100 Index has moved in an indirect lock-step movement with the longer-term 10-year US Treasury yield where the yield rallied to a 16-year high to print an intraday high of 4.69% yesterday, 28 September.

In a nutshell, in the past ten weeks, the rising 10-year US Treasury yield representing higher long-term borrowing costs is a significant factor contributing to the decline seen in the US Nas 100 Index as it falls under the “long-duration” risk asset classification; the present values of the longer-term revenue flows of the technology and meg-cap stocks of the Nasdaq 100 (Apple, Amazon, Alphabet, Meta, Microsoft, Tesla & Nvidia) are vulnerable to a higher interest rate environment.

Interestingly, the 10-year US Treasury yield formed a daily bearish reversal “Shooting Star” candlestick pattern yesterday right at the upper boundary of its medium-term ascending channel which suggests a potential corrective pull-back or retreat in the Treasury yield within its medium-term and major uptrend phases.

The formation of the daily bearish reversal “Shooting Star” seen in the 10-year US Treasury yield coincided with the price actions of the US Nas 100 hitting the medium-term support zone of 14,445/14,300 (also the ascending trendline from 28 December 2023 low).

Therefore, a potential impending pull-back in the 10-year US Treasury yield may lead to at least a short-term counter trend rebound in the US Nas 100 Index based on their recent significant indirect correlation.

 Short-term momentum bullish breakout

Fig 2: US Nas 100 minor short-term trend as of 29Sep 2023 (Source: TradingView, click to enlarge chart)

As seen on the shorter-term 1-hour chart, the hourly RSI of the US Nas 100 Index has staged a bullish breakout above the 50 level which suggests the recent downside momentum of the minor downtrend in place since the 15 September 2023 high has dissipated.

These observations also support a potential counter trend rebound scenario. Watch the 14,560 key short-term pivotal support with the next immediate resistances coming in at 14,860 and 14,980 (38.2% & 50% Fibonacci retracement of the recent minor downtrend from 15 September 2023 high to 28 September 2023 low).

However, a break below 14,560 invalidates the bullish tone for a slide to test the 14,445/14,370 key medium-term support zone.

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