Nasdaq 100 & Dow Jones Price Outlook:
Nasdaq 100 Suffers Breakdown as Dow Jones Treads Water – Stock Market Forecast
The Nasdaq 100 and Dow Jones have continued lower this week as rising Treasury yields give investors a reason to consider exposure elsewhere. That said, the longer-term equity outlook remains encouraging as inflationary pressures and rising yields are underpinned by expectations of a strong US economy. Nevertheless, equity weakness may persist in the coming days as investors ponder portfolio allocations amid the shifting market environment and the Nasdaq 100 appears exceedingly vulnerable.
Nasdaq 100 to Dow Jones Ratio – Rough Growth to Value Proxy
Chart created in TradingView
To be sure, the tech-heavy Nasdaq 100 is situated at the extremes of the market’s risk curve which has left it exposed as investors look to reposition. It is rather unsurprising, then, that the Nasdaq 100 has seen its losses outpace that of the S&P 500 and the Dow Jones. Steeper declines have also seen the technical landscape weaken, most notably with a break below the March 2020 trendline, which may allow for an extension lower and a continuation of the shift from growth to value.
Nasdaq 100 Price Chart: Daily Time Frame (January 2020 – February 2021)
Last week we highlighted 13,315 as a potential line in the sand that could see losses accelerate if pierced. Evidently, 13,315 fell in short order and an extension lower was delivered. The rising trendline had guided the Nasdaq 100 higher since March and a break beneath is a substantial blow to the index’s technical landscape. Staving off further losses in the days ahead may prove crucial for tech stocks.
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To that end, months of gains have created a plethora of subsequent support for bulls to work with. As recent price action might suggest, the late January low near 12,727 could provide a modicum of support. The 12,500 area slightly lower still may serve as the next major zone before giving way to the 200 day moving average near 12,000.
Dow Jones Technical Forecast
Unlike the Nasdaq 100, the Dow Jones has been able to tread water near record levels and create a series of long lower wicks in the process. Should turbulence continue, the Dow can look to a major confluence of support from 31,130 to 30,865. Critically, the Dow has maintained the trendline extending from March and trades above its 50-day moving average.
Dow Jones Price Chart: Daily Time Frame (January 2020 – February 2021)
Suffice it to say, the rotation from high-flying technology stocks into more reasonable value or industrial stocks that has been unfolding due to shifts on the fundamental side of the market has created divergent pictures in the technical landscape. With Treasury yields and inflation expectations on the rise and the opposing technical pictures on the two major US indices, it would appear the rotation may be set to continue in the days ahead.
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Traders can look to approach this dynamic through bullish exposure to the Dow Jones and simultaneous bearish exposure to the Nasdaq 100. Such positioning would be well suited if the trend continues but is not without considerable risk. Further still, the odds of profit and loss are evenly balanced in trading. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.
–Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX