Nasdaq 100 outlook: Technical Tuesday - January 14, 2025

Nasdaq futures rose a further 0.5% by mid-morning European trade, following Monday’s sharp recovery. Other US indices were also higher after several global indices printed reversal-looking hammer candles on their daily charts on Monday to suggest we may have seen a bottom following the recent weakness. However, it remains to be seen whether the bulls will come out forcefully on the back of that recovery. After all, the macro backdrop has not changed materially – with bond yields remaining near their recent highs and investors having just pushed back their rate-cut expectations towards the end of the year. Investors are still cautious despite reports that Trump will be considering a more gradual ramp-up in trade tariffs in order to avert inflation spikes. So, more price action is needed to confirm a low has been hit, as this could just turn out to be an oversold recovery – especially given the recent bearish price action across several US indices. Thus, it is too early to turn positive again on the Nasdaq 100 outlook.

Nasdaq 100 outlook hurt amid rising bond yields

After a small pullback, US bond yields are on the rise again. Yields have been surging higher in recent days, with the 30-year yield hitting 5% on Friday and nearing October 2023 peak of 5.178%, while the 10-year yield hovers near 4.80% having also broken above last year’s highs despite the Fed pivoting. Rising yields aren’t just evident in the US. Japanese, European and UK government bonds are also seeing their yields climb to multi-year highs. Notably, the UK 10-year yield has reached levels last seen during the 2008 financial crisis, near 4.90%. Even Japan’s benchmark 10-year yield has hit its highest point since 2011 at 1.25%, even though interest rates there are less than 0.25%. Higher yields globally present a competitive alternative to growth stocks, which typically don’t pay dividends and come with relatively higher levels of risk compared to government debt.

Inflation data in focus

Investors’ attention remains firmly on the bond market, which have been rising due to shifting interest rate expectations. As well as robust economic data from the US, threat of tariffs and rising price of oil all point to persistence in inflationary pressures. Following Friday’s strong jobs report, the market now expects the first rate cut of this year from the Federal Reserve will be delayed until Q4. This week’s focus shifts to US inflation in the next couple of days, followed by Chinese growth figures on Friday. Today we will have US PPI, expected to increase to 3.7% year on year up from 3.4% the month before. Tomorrow’s CPI data is expected to show a rise in consumer inflation to 2.9%, and could we see even stronger data then that could fuel concerns over the revival of inflation and a more hawkish Fed. But if inflation data turns out to be weaker, then we may see some calm return to markets.

Technical Nasdaq 100 outlook: A Critical Juncture

Source: TradingView.com

After the doji/hammer candle that was formed on major US indices like the S&P 500 and Nasdaq 100, the key question now is whether we will see some upside follow-through today, or do we go back lower. In the first half of the session, we have seen some mild buying, but the day is still young, and things could change once US cash markets open for trading.

Keep a close eye on the high from Monday’s range at 20871. This level will be critical in determining the near-term technical Nasdaq 100 outlook. While above it, the bulls will be looking to build a base for the next upside move. However, if we now go back below Monday’s high – and stay below it – then this would put the bulls who bought on the back of Monday’s rally, in a spot of bother. If we do see such a trap signal, then this could potentially see the selling pressure resume and we could take out Monday’s low of 20529 fairly quickly.

Overall, the Nasdaq is holding inside what looks like a short-term bearish channel or potentially a bull flag pattern. With key support levels yet to be tested, I am not so keen on the apparent reversal signal that was formed on Monday. Had we seen such a pattern, say, around the 200-day moving average, a fair bit lower, then it would have been a different story.

In the event we see a daily close below Monday’s high and ideally (from a bearish point of view) below the July high of 20759, then that would be a bearish development.

Key resistance is seen between 20980 to 21232. The lower end of this range marks the prior support area, while the upper end was the high in November.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R