Fed Chairman Powel plans to speak in Congress tomorrow. The Senate Banking Committee is holding a hearing on President Biden’s nomination of Powell for a second four-year term. The panel will question Chairman Powell on how he will promote stable prices, support the economy, and at the same time create maximum employment.
The Fed remains a crucial variable for the financial markets. Fed’s pivot away from easy monetary policy toward raising interest rates has upset the financial markets. The Fed shocked the bond market, which spoked the stock market. The wild ride in stocks may be nearing a critical phase as the rotation from growth into value has led to panic-type selling.
Will the market hold or break down this week?
Based on major US indexes, the Nasdaq Composite Index (COMPQ) and the Nasdaq 100 Index (NDX) are closest to their respective critical supports. Investors and traders need to monitor the two key indexes to determine whether they will hold or break. The outcome can decide the directional trends of Technology and Growth stocks this year.
Enclosed below is a brief technical summary of the two Over-the-Counter markets – the Nasdaq Composite Index (COMPQ) and the Nasdaq 100 Index (NDX).
Nasdaq Composite Index (COMPQ – 14,942.83)
The strong COMPQ rally from 10/4/21-11/22/1 of +2,030.54 points or +13.32% led to an overbought condition. Did the three recent corrections (i.e., -7.91%, -5.94%, and -8.63%) alleviate the overbought condition? Although COMPQ has briefly violated its Dec 2021 lows (14,860-14,931) and the 200-day ma (14,690), it remains above its 10/4/21 reaction low (14,181.69), suggesting a higher-low pattern. Technical indicators like market breadth, price momentum, RSI, ADX/+DMI/-DMI, and the relative strength, remain weak, suggesting a technical base is necessary. A trading range can develop between 14,182-14,530 (Oct 2021/Jan 2022 lows) and 15,591-15,901.5 (50-day ma and the Dec 2021/Jan 2022 highs) as the two key moving averages converge. Note the negative outside days in Nov/Dec 2021 and Jan 2022 triggered the recent corrections. Will a gap-up, island reversal, or any other reversal pattern signal the start of the next COMPQ rally?
NDX 100 Index (NDX – 15,614.43)
The impressive 10/4/21-11/22/21 NDX 100 Index rally of 2,4799.93-points or 16.54% was not sustainable. An overbought condition coupled with negative outside days (11/22/21, 12/9/21, and 1/4/22) warned of three subsequent corrections, including 7.29% (8-days), 5.51% (7-days), and 8.69% (currently 4-days). Although the current 1/4/22 correction has broken its Dec 2021 lows (15,508.74-15,543.31) it is still trading above its 200-day ma (14,925.20), 61.8% retracement from Oct-Nov 2021 rally (15,294), and the 10/4/21 reaction low (14,384.93). The ability to maintain the above key support may signal the start of the next technical base between 14,925-15,165.5 (200-day ma) and 14,147-16,607 (50-day ma and 12/28/21 high). Will this new technical base set the stage for the next sustainable NDX rally to a new all-time high? Violation of 14,484.93 (10/4/21 reaction low) confirms a lower-low pattern and the start of the next major downturn.