The NASDAQ 100 broke down significantly on Monday to reach towards the 13,100 level in the futures market. We are currently testing a major support region, extending down to the 13,000 level underneath, so obviously this is an area that is worth paying attention to.
If we break below the 13,000 level, the market is likely to go looking towards the 12,500 level, possibly down to the 12,000 level after that. The NASDAQ will continue to get hammered due to the fact that monetary policy continues to tighten and of course, the growth prospects of economies continue to dwindle. If that is going to be the case, then it is likely that these high-growth stocks that make up a majority of this index will continue to get punished.
The size of the candlestick is reasonable, but the fact that we are closing towards the bottom of it does suggest that perhaps we will probably have a bit of follow-through, and that is something that needs to be addressed. A breakdown below here could really start to accelerate the downside. That being said, the market is likely to see a lot of attention paid to the Federal Reserve statement coming this week, as the FOMC meeting and of course the attitude of the statement will have a lot to do with where we go long term. If monetary policy continues to tighten, that should work against these higher growth stocks, so I think you need to be cautious about trying to buy this market. That being said, I think that short-term rallies will get sold into, and therefore I have no interest in buying at all.
In fact, it is not until the Federal Reserve statement is out and the reaction happens that I would change my attitude on this market. You could make an argument that we are forming a bit of a falling wedge, and that could be a bullish signal. However, we need to break much higher to really start to jump on that bandwagon. The market is going to continue to see lots of fear out there, and right now it does not look like a lot of traders are willing to jump in and try to find value. Quite frankly, this is a miserable setup at this point.
