(News Bulletin 247) – After a downward inflection during the same session on Thursday with the inflation figures, the Nasdaq Composite index frankly weakened on Friday (-2.78% to 13,791 points), definitively breaking a pattern of consolidation in thick volumes. The now chronic inflation, the increasingly harsh language elements among the most “hawkish” of the Fed, and the fear of an escalation on the Russian-Ukrainian front weigh on the Nasdaq Composite index, particularly sensitive to yields LT government bonds.
As a reminder on US inflation, the statistical high point on Thursday, the consumer price indices came out markedly higher, beyond expectations, and thus raising fears of a faster and stronger turn of the screw on the part of the Fed. Excluding food and energy (elements considered volatile), prices rose monthly by 0.6% in December, against a consensus of +0.5%. Already in November, these prices rose by 0.6%. At an annualized rate, prices are rising by 6%, unheard of since August 1982. Including energy and food, annual inflation is 7.5%. The 10-year Treasuries immediately crossed the 2% threshold. What relaunch the scenario of a “double” increase in federal rates next month, namely a rise of 50 bps at once. At the risk of weighing heavily on growth records. To make matters worse, the next day, Friday, appeared the preliminary data of the US consumer confidence index according to research from the University of Michigan, down sharply to 61.7, completely missing expectations.
“This is a very broad-based price increase in the United States in January.” notes Bénédicte Kukla, Senior Investment Officer at Indosuez Wealth Management. “Temporary energy price hikes and supply chain impacts are taking longer than expected to fade. Looking ahead, labor market tightness in some sectors is putting pressure on average hourly wages (up 5.7% on an annual basis in January, the highest rate in 15 years) and increase the risk of long-lasting inflation.
“The risk factor remains an escalation of the Ukrainian conflict which would lead to very significant increases in energy prices.” adds Ms. Kukla, who concludes that “in this context, markets have now priced in six to seven interest rate hikes in 2022.”
KEY GRAPHIC ELEMENTS
Let’s stop for a moment on the combination of candles validated on Thursday 01/20, firmly campaigning for a continuation of the ebb: a so-called three-cord black structure. The three black ravens are sometimes called “three-winged raven”, a term that comes from a Japanese expression saying that “bad news has wings”. This combination portends prices to fall if they appear at market highs or during an uptrend. Visually, the 3 crows are 3 black candlesticks, combining the following 2 characteristics:
1) All 3 candlesticks close at or near their lows.
2) Each open must be inside the body of the previous candle.
The structure is therefore fully validated and the thick and constant volumes on the three candles highlight its direction, in a market worried about the rise in long-term government bond yields.
In the end, over the whole of week 03, and on high cumulative volumes, the index will have closed on its session lows four times. In weekly data, this is the third time that it has closed on (or almost on) its weekly lows. The oblique line symbolizing the underlying trend was broken, and after a pullback on January 12, the index started falling again on January 13, with investors mobilizing throughout the session. Since then, the index has almost returned to levels where it had drawn a W on the slant last May. Breaking these levels would be problematic.
In the immediate future, the hanging candle drawn on Wednesday 02/02 on confirmation of the price/volume divergence, immediately followed by a bearish gap, calls for the greatest caution. Congestion is expected between 13,330 points and 14,445 points, ie a wide band where operators’ nervousness can be expressed. In case of exit from below, especially in thick volumes, the technical situation becomes problematic. As such, the week will be very technically challenging.
FORECAST
Considering the key chart factors we have mentioned, our opinion is negative on the Nasdaq Composite index in the short term.
This bearish scenario is valid as long as the Nasdaq Composite Index is trading below the resistance at 14445.00 points.
CHART IN DAILY DATA
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