Fundamental Outlook

The sharp reversal in the Nasdaq 100 came after one of the strongest weeks for the tech sector this year. Following the Fed's decision on 16 September to raise interest rates, the first hike in three years, equities greeted the move with a powerful rally that carried the index to a record close on 22 September, with a weekly gain of 6.4%. The quality of that advance, however, was fragile: half the gain came from just five stocks, MU, AMD, NVDA, INTC and META.

The spark came on 23 September from the flash purchasing managers' index data, which showed the fastest pace of US private-sector growth in more than five years, sending the 10-year Treasury yield surging to 5.135%, its highest level since July 2007. Herein lies the core mechanism: strong data is no longer good news for equities but rather justification for further tightening, and rising yields lift the discount rate, hitting high-valuation growth stocks, the very core of the Nasdaq, harder than anything else.

Attention now turns to the October meeting, with a 53% probability of another hike being priced in and inflation holding at 3.4% in August. Personal Consumption Expenditures data on 30 September will be the first inflation reading after the meeting: a hot print would push yields higher and add pressure on the index, while a softer reading would give equities room to breathe and support the corrective rebound scenario.

Technical Analysis

Figure: Nasdaq, H4, TradingViewFigure: Nasdaq, H4, TradingView

After the strong bullish leg that began from the 29,000 area and peaked at 30,800.98, price broke the last higher low at 30,377 and printed a new low beneath it, shifting market structure from bullish to bearish on the H4 timeframe. This is reinforced by the exponential moving averages: the 5 EMA (red) has turned lower, indicating a change in short-term momentum, while price has broken below the 21 EMA (blue). Should the 5 EMA cross below the 21 EMA, it may point to the downside move extending into the mid term as well.

The reversal was also preceded by a clear bearish divergence on the Relative Strength Index, which printed a lower high from overbought territory while price was printing a higher high. The indicator currently trades at 44.36, below the 50 level, reflecting momentum tilted in favor of sellers.

Applying Fibonacci levels to the down leg from 30,800.98 to 30,070.95, the zone between 0.786 (30,644.75) and 0.88 (30,713.38) stands out as a key supply area, and a corrective rebound into it followed by a clear rejection remains the higher-probability scenario for a resumption of the decline.

Any close above 30,800.98 on the H4 timeframe would bring the bullish scenario back into play, while a confirmed break of 30,070.95 would open the way toward the 29,600 area and then the previous accumulation base at 29,100 and 29,000, particularly as the latest advance was near-vertical, leaving no intermediate support built along the way.