At the time of writing, risk assets were coming off their worst levels after the Fed's Williams said that the downside risks to employment have increased and that he’s open to near-term rate cut. But the markets remain volatile, and more stock market losses could be on the way in this last day of what has been a brutal week for risk assets, with major global indices, Bitcoin and Japanese all crashing. Following the break of key levels on major indices, our DAX forecast has also turned bearish in the short-term, following the footsteps of the Nasdaq 100.
What’s driving risk off sentiment?
Well, multiple reasons. Despite strong earnings from Nvidia, the tech selling resumed yesterday and that caused a massive bearish signal to emerge on the Nasdaq 100 chart. As well as valuation concerns, the recent rise in Japanese yields has unnerved investors, which in turn, has triggered the unwinding of the carry trade. When carry flows reverse, leveraged positions tend to get hit across the board, whether that is tech stocks, crypto or even gold. Indeed, precious metals have been no exception with silver falling 4% at the time of writing. Investors are demanding higher compensation for rising fiscal risks, and the bond market has been repricing as a result. We have also had fiscal jitters in the UK ahead of next week’s budget. Crypto’s carnage with Bitcoin sliding some 35% from its record peak is also adding to the global market volatility. All of this may make it harder for the Nasdaq 100 to sustain any upside run, even with Nvidia’s help. The German DAX, having failed to rally all summer, could be in big trouble if sentiment doesn’t improve.
DAX forecast: German index breaks key support
The bearish tone is also evident in Europe this morning, with the German DAX facing similar pressures as the rest of the global indices. Yesterday, the index attempted to climb out of a former support area, only to be sharply rejected at the 200-day moving average and the prior low around 23,500. This rejection created a bearish engulfing candle on the daily timeframe, which is a clear sign that the sellers remain in control.
For now, staying below this key zone keeps the bias to the downside. Historically, this area has produced significant reactions – both major sell-offs and strong rallies. So, trading beneath it is decidedly bearish. Immediate resistance sits around 23,075, which marks Wednesday’s low before it was overwhelmed in the sell-off. As long as the index holds beneath that level, further downside remains likely.
The next immediate target lies just below 22,900, where liquidity is expected to be resting (i.e., stops from yesterday’s dip buyers). Beyond that, the chart opens up considerably until levels last traded in April. Fibonacci retracement levels offer some structure, with the 38.2% mark around 22,500 acting as the next key potential support, followed by the 50% retracement close to 21,790.
Nasdaq 100 forecast: Big reversal sign
Unless sentiment turns positive, it could be a potential Black Friday as the sell-off across equities and crypto markets continue. US equity futures are heading lower as Europe gets underway, and the Nasdaq 100 continues to extend its losses after yesterday’s sharp reversal. The index had been trading strongly on the back of Nvidia’s earnings before things turned south, dropping more than 1,200 points from the session high and forming a sizeable bearish engulfing candle on the daily chart.
The Nasdaq has now slipped beneath the trend support of its bearish channel, having already broken the longer-standing bullish trend line that held before the summer. With the index trading below the key 24,000 area – its most recent significant low – the path of least resistance is firmly to the downside for the near term.
The first levels to watch on any rebound are 24,360 and then 24,300, both of which served as previous short-term lows and now act as resistance. A broader trend shift would require a move back above the heavier resistance zone at 25,200, which held during yesterday’s session. Until then, the focus remains on how much further the Nasdaq might fall.
Source for all charts used in this article: TradingView.com
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
