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Chart Of The Day: Increasing Inflation, Technicals Sending Nasdaq To 10,500

By Pinchas Cohen/Investing.comMarket OverviewOct 03, 2022 07:28AM ET
www.investing.com/analysis/chart-of-the-day-increasing-inflation-technicals-sending-nasdaq-to-10500-200630579
Chart Of The Day: Increasing Inflation, Technicals Sending Nasdaq To 10,500
By Pinchas Cohen/Investing.com   |  Oct 03, 2022 07:28AM ET
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Nasdaq 100 futures underperformed futures on the Dow, S&P and Russell 2000 and were the only index to trade in the red.

Sharply rising Treasury yields have been a critical driver of this year's equity selloff. Rising borrowing costs make it more expensive for investors to prop up stock prices, limit corporate investment opportunities and increase costs, thus denting profits.

Given that the technology sector is a growth sector, it also suffers the most in a rising interest rate environment as investors move to sectors with lower valuations.

This rotation turned the Nasdaq 100 into this year's worst performer, sliding 32.7% and losing almost a third of its value. To put its slide into perspective, the small cap Russell 2000 suffered a smaller 25.4% loss as smaller companies also struggle when interest rates rise as they do not have the credit history of their larger cap competitors.

So far this year, the S&P 500 is down 24.77%, and the Dow Jones has outperformed with just a 21% decline.

Although US yields have eased this morning, providing some respite to US futures, there are a few other things that may further hike US inflation.

OPEC is considering its biggest production cut since the pandemic, causing oil to open 2.8% higher and extend an advance to 4.6%. However, I don't expect it to keep moving higher.

The energy crisis in Europe escalated with Russia's Gazprom (MCX:GAZP) halting gas supplies to Italy amid a dispute with its Austrian operator. Additionally, Eurozone inflation soared to a record 10% in September, a jump from 9.1% in August and higher than the estimated 9.7% which will pressure the ECB to raise rates further.

In a global economy, inflation is contagious, and the NDX may be sensitive to these pressures. Let's look at the chart.

Nasdaq 100 Daily
Nasdaq 100 Daily

The tech-heavy benchmark registered a new low, extending the downtrend and completing a rising flag, signaling further lows. The new trough should end any talk about a bottom, a call I have been staunchly opposed to throughout the rally. My reason: if the long-term peaks and troughs point down, there is no bottom.

A rising flag is a period of rest after a sharp selloff. It slopes upwards as short sellers cover but remains crowded as fresh bears keep the pressure going. The downside breakout demonstrates that the short squeeze is over and everyone is now on the same page, continually selling. After the penetration, there could be a return move, on another short squeeze, before the price turns down and statistically repeats the same preceding sharp drop of almost 900 points.

Trading Strategies

Conservative traders should wait for the flag's penetration to reach at least 10,875 to satisfy a 3% filter to avoid a bear trap in case of a fakeout. They should also wait for at least one more day, during which the price doesn't jump back into the pattern, completing a minimum 3-day filter from Thursday's completion. Then, they'd wait for the potential throwback that confirms the pattern's integrity.

Moderate traders would wait for the potential throwback for a better entry, if not for added confirmation.

Aggressive traders could short according to their strategy.

Trade Sample - Aggressive Short

Entry: 11,100
Stop-Loss: 11,300
Risk: 200 points
Target: 10,500
Reward: 600 points
Risk-Reward Ratio: 1:3

Disclaimer: The author has no positions in any securities mentioned in this article.

Chart Of The Day: Increasing Inflation, Technicals Sending Nasdaq To 10,500
 

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Chart Of The Day: Increasing Inflation, Technicals Sending Nasdaq To 10,500

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Comments (10)
Andrea Mears
Andrea Mears Oct 04, 2022 9:25PM ET
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thank you for the trading strategies ;-)
amjad ali
amjad ali Oct 04, 2022 11:05AM ET
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1200$ gold text book said never come in your life even 1500$ soo bad how much u get money for this news
Larry Li
Larry Li Oct 04, 2022 3:22AM ET
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Just resign sir, i can write a bot that predict better than you
Pinchas Cohen
Pinchas Cohen Oct 04, 2022 3:22AM ET
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You're commenting this on a trade that confirmed my parameters :)
Larry Li
Larry Li Oct 04, 2022 3:22AM ET
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Pinchas Cohen stupidity has no cure
Captain ffej snori
Captain ffej snori Oct 04, 2022 12:45AM ET
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Didnt age well
Pinchas Cohen
Pinchas Cohen Oct 04, 2022 12:45AM ET
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It ages beautifully and confirmed my thesis, even my aggressive sample.
amjad ali
amjad ali Oct 03, 2022 4:26PM ET
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pinchas you r very rich person bill gates is your worker
amjad ali
amjad ali Oct 03, 2022 2:57PM ET
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technicalli gold will go to 1200 $ many analysis take a lots of money for this news like pinchs christoper chris vermulan etc but my opinion every dip of gold u can buy
Fahadull Islam
Fahadull Islam Oct 03, 2022 11:30AM ET
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hello how are you i am fahadull
Mike Seling
Mike Seling Oct 03, 2022 10:43AM ET
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target wrong
Djamshid Bakiev
AMMM Oct 03, 2022 10:43AM ET
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what's yours?
Mike Ca
Mike Ca Oct 03, 2022 9:07AM ET
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I'm going in long for the new month. End of month dressing is today's gains. yeah only for today
Andrea Mears
Andrea Mears Oct 03, 2022 9:03AM ET
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Thank you for the trading strategies! Do you have an estimated time frame and final bottom target range?
Pinchas Cohen
Pinchas Cohen Oct 03, 2022 9:03AM ET
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The time from the flagpole to breakout.
Pinchas Cohen
Pinchas Cohen Oct 03, 2022 9:03AM ET
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The time from the flagpole to breakout.
Pinchas Cohen
Pinchas Cohen Oct 03, 2022 9:03AM ET
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The time from the flagpole to breakout.
 
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