Nasdaq 100 forecast: Will dip buyers rescue markets again or is it different this time?

Nasdaq 100 forecast: Following Tuesday’s drop, US equity futures attempted to recover in the first half of Wednesday’s session, ahead of another day void of any major economic data. The focus will remain on chipmakers after the sector was hit on the back of a profit warning from Dutch chip equipment maker ASML and reports the US was capping sales of advanced AI chips from American companies such as Nvidia on a country-specific basis. Traders will be wondering whether Tuesday marked a change in the trend. Is it time to start shorting the markets, or will the dip buyers once again come to the rescue? Betting against the market has proved to be very costly this year, with all sorts of dips being bought fairly quickly. But is this another such scenario or is it different this time around – especially with US presidential election now just three weeks away?

ASML’s warning puts chipmakers in focus

ASML’s profit warning rattled sentiment in the sector on Tuesday, hurting Nvidia stock, which at one point sunk around 5%, before bouncing back a little. ASML fell further on Wednesday before staging a mini comeback, which helped to lift US chipmakers in premarket off their lows – along with US index futures. But it remains to be seen whether ongoing strength of demand for artificial intelligence will prevent a larger correction in the sector. Keep an eye on Invidia in particular, which has a large influence on the Nasdaq 100 forecast.

Elsewhere, sentiment has been supported by global easing of interest rates by central banks with the ECB set to ease its policy by another 25 basis points on Thursday. How much of this optimism is priced in remains to be seen. But with the upcoming US presidential elections now just a few weeks away, we may see some profit-taking ahead of such a major event risk, especially with the polls being so tight.

Resilience of market being tested

In recent week, the resilience of the stock markets has been remarkable. Despite many factors that should have caused a sell-off—like hotter US inflation data, climbing bond yields, geopolitical tension, concerns about a recession, and a slowing Chinese economy —the S&P hit new record highs. While the Nasdaq 100 has so far failed to follow suit, it has nonetheless closed in on its own record high that was set in July, before staging a pullback on Tuesday. Bond yields are still elevated despite coming down in the last couple of days, with the 10-year yield still above 4%. But for how much longer will the bulls be able defy these sorts of macro forces and justify buying stocks, without first seeing a decent pullback?

What does it all mean from trading point of view?

For bearish traders, what is important is follow-though now. If we see further weakness in the coming days, causing the breakdown of some key short-term support levels, only then will traders have a solid reason to start selling. The bulls, meanwhile, should tread extra carefully, tightening stop losses and watching for any sudden shifts, especially as we get closer to the election date.

Nasdaq 100 forecast: Technical outlook

Source: TradingView.com

On the technical side, the Nasdaq 100 remains in a solid uptrend and more evidence of a top is needed before we drop giving the benefit of the doubt to the bulls. The index has been making steady gains since bottoming out in August, and it’s consistently posting higher highs and higher lows. It has remained above the 21-day exponential moving average, and key resistance levels have turned into support zones.

The key support level to watch right now is between 20,000 to 20,120, a previous resistance area that has now flipped. If the bulls can push the index past resistance level at 20,210 and 20,325, the next target is 20500, marking the liquidity resting above this week’s high, followed by the July high of 20,759.

That said, traders need to stay alert. If the 20,000 level fails to hold, the index could pull back to the 19,635–19,715 range. This area is critical—if it breaks, the Nasdaq 100 could correct further, at which point we will turn more cautious. For then, the 21-day exponential will have broken down along with the short-term bullish trend line that has been in play since the market bottomed in September.

Final thoughts

The Nasdaq 100 has enjoyed a strong run, but it's essential to stay cautious. The market is defying expectations, but a sharp reversal could still be in the cards as we approach the US presidential election. Keep an eye on the key support levels, tighten your risk management, and watch for signs of a trend shift. For now, the bulls still have the upper hand, preventing us to issue a bearish Nasdaq 100 forecast, but as always in trading, anything can happen.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R