The risk-sensitive Nasdaq 100 Composite index is facing a steep selloff on the day after rising bond yields and a steep spike in consumer inflation spooked investors on the day.
The US Consumer Price Index (CPI) rose by 0.8% in April, which beat the analysts’ estimate of 0.2% and overshadowed March’s 0.6% increase. The core CPI jumped 0.9% after analysts had predicted a rise of only 0.3%, thus sparking fears that the Fed may be forced into considering an earlier commencement to its tapering cycle.
Reuters quoted vice-Chairman of the Federal Reserve Richard Clarida as saying that he was “surprised by higher-than-expected inflation data.” He, however, reemphasized that though the Fed did not have “unlimited tolerance for inflation,” it would be essential to consider only well-anchored inflation expectations. These comments, meant to douse any expectations that the Fed could reconsider its stance on tapering and rate hikes, did little to assuage investors on the Nasdaq 100, who were also selling due to rising T-bond yields.
Technical Levels to Watch
The decline in the Nasdaq 100 from point D at 14078.2 is the resolution move of the harmonic pattern. Price appears destined for the 12973.9 support level. A breakdown of this area opens the door towards 12769.3 (23 February, 12/18/30 March lows). This area is where point C in the “W” pattern is located. A further decline below this level targets 12489.7, with 12231.7 and 12003.6 also lining up as potential future targets.
On the other hand, bulls would be waiting to see if a price bounce showcases a suitable dip-buying area. If this bounce occurs on 12973.9, we could see a further push to the north that targets 13135.5, with 13344.2 and 12559.2 also serving as additional targets to the north. Only a breach of the 14078.2 all-time high will restore the uptrend. This move requires additional uncapping of resistance levels at 13801.9 and 13904.2.