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This is a market that is trying to form a bottoming pattern, but the financial conditions do not warrant this, so I think we are getting closer to the top than anything else.
The NASDAQ 100 Index rallied significantly Wednesday after the Federal Reserve raised interest rates by 75 basis points. That being said, traders are starting to look at this through the prism of a relief rally, and it’s also possible that traders are thinking that the Federal Reserve may not be as massively hawkish as thought. At this point, I think it’s probably a scenario where the market will probably start selling off again given enough time.
When I look at this chart, the most obvious area of resistance is the 13,000 level, and that’s an area that I think probably has a lot to do with where we defined the trend as going. The market has been extraordinarily noisy for a while, and while we did rally quite significantly, the reality is that the market is still coming from a point of extreme weakness. Yes, the buyers had their day, but that’s typically the case on Federal Reserve Day. Furthermore, what’s most likely to happen is that we will either sell off on Thursday or Friday because that’s what has been the case going back several meetings. There is a certain amount of hope that Jerome Powell will come into the picture and save everybody’s skin, which is what people have been conditioned to think.
However, what this sets up is a situation where the market will perhaps try to bounce a bit, but eventually will have to focus on the next economic numbers when it comes to inflation. If they continue to be very hot as far as inflation is concerned, then it’s likely that we would see further selling in this market.
The 12,250 level being broken to the downside could open up fresh selling, as it would be a bit of capitulation, which is something that the market will probably see sooner or later. However, if we can break above the 13,000 level, then it’s possible that we could go to the 13,500 level next and start to think about the idea of more of a “buy-and-hold” type of scenario. Ultimately, this is a market that is trying to form a bottoming pattern, but the financial conditions do not warrant this, so I think we are getting closer to the top than anything else.
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