The recent performance of the Nasdaq 100 has left investors on edge, with the benchmark US stock index recording a monthly loss of -1.6% in July. This marked it as the worst-performing among its peers like the S&P 500, Dow Jones Industrial Average, and Russell 2000. The global risk-off behavior that unfolded over the past few weeks saw the Nasdaq 100 plummet by -16% from its high in July to its low on August 5, 2024. This was exacerbated by momentum-driven strategies trimming their exposure to US mega-cap tech stocks, which hold significant weight in the index. The subsequent climb in implied volatility, as seen in the VIX, painted a grim picture of market sentiment. However, the recent rebound of the Nasdaq 100 by 9% has offered a glimmer of hope, albeit momentarily.
Economic Indicators and Inflation Risk
The market’s current fixation on growth-related macroeconomic data over inflation risk has raised concerns about a potential hard landing or recession in the US. Despite a soft July US CPI print indicating a deceleration in inflation, the Nasdaq 100 failed to benefit from this news, hinting at deeper underlying issues. If retail sales data for July reflects a continued slowdown in consumer spending, fears of a recession may resurface. The urgency for the US Federal Reserve to initiate interest rate cuts has also added to the prevailing uncertainty in the market.
The relationship between the VIX and VVIX ratios has been a cause for concern in the market. While the VIX has shown a decline in implied volatility post the global sell-off on August 5, the VVIX has not followed suit at the same pace. This imbalance has led to an increase in the VVIX/VIX ratio, indicating lingering uncertainty among investors. The current ratio sits at a level that has previously preceded corrective declines in the S&P 500, highlighting the fragility of the current market environment.
From a technical standpoint, the Nasdaq 100 CFD shows signs of near-term exhaustion in its bullish momentum. The failure to breach the key resistance level of 19,230 could trigger a corrective decline, potentially exposing intermediate support levels. Conversely, a breakout above 19,230 would pave the way for further upside gains. The intricacies of technical analysis suggest a delicate balance between bullish and bearish scenarios for the Nasdaq 100.
The road ahead for the Nasdaq 100 appears rocky, with a myriad of factors influencing its trajectory. From economic indicators to volatility concerns and technical analysis, the index is at a critical juncture. Investors would do well to proceed with caution and monitor unfolding developments closely to navigate the tumultuous waters of the current market environment.
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