Nasdaq 100 plunges into bear market as soaring oil prices fuel stagflation concerns


  • US stocks sink at the beginning of the week in a climate of risk in the face of high geopolitics tensions stemming from the ongoing war in Ukraine
  • Nasdaq 100 breaks through support and crashes 3.75% to 13,319increasing the likelihood of a retest of the 2022 low
  • Deteriorating investor sentiment in the face of stagflation fears could prevent a significant rally in equities in the short term

Most read: Dow Jones, Nasdaq 100, S&P 500 Forecast – The Relative Strength Game

Last week brought only turmoil on Wall Street. Although the February jobs report posted on Friday was undeniably strong and encouraging thank you in part to the rapid decline in COVID-19 cases, investors took little reassurance on the data, as the lesson crisis in Eastern Europe occupied everyone’s mind.

At the beginning of the week, the situation is not betterin fact, the atmosphere is rapidly acidifyingwith declining stocks across the board. Against this backdrop, the Nasdaq 100 fell 3.75% to 13,319 on Monday amid strong selling activity in the technology sector, posting its biggest decline since the start of last month and plunging into a bear market, a situation in which the underlying asset has fallen 20% or more from a recent high.

Russia’s invasion of Ukraine sparked a huge rally in commodities, especially oil, as the energetic the sanctions imposed on Moscow for its aggression increased the geopolitical risk premium and began to disrupt some international trade. In this context, WTI and Brent rose around 25% in March alone and are trading at their highest level since 2008. While it is not yet time to panic, it is important to understand that current events are likely to accelerate inflationary pressures and weigh on economic activityvia the channel of feelings and by demand destruction from superior raw material costs.

In general, high inflation coupled with low GDP growth is a bad combination for equities and, of course, a perfect recipe for volatility, but the problem grows exponentially if macroeconomic conditions prevail.economic conditions lead to stagflationan environment of soaring consumer prices and stagnant or declining production this tends to be excessively detrimental to corporate profits.

Related: Which assets are most affected by Russia’s invasion of Ukraine?

At present, the U.S. economy remains on solid footing and looks poised to develop above potential in 2022 (3.2%), according to most forecasts, but the outlook could quickly deteriorate if the war in Ukraine drags on and escalates into a broader regional confrontation involving NATO. It is not possible to know for certain how the crisis will play out, but traders should be prepared for all scenarios. On that note, it’s important to point out that Kyiv and Moscow concluded their third round of talks on Monday, but were unable to reach a truce/ceasefire agreement, with President Putin focusing and doubling at his outrageous requests. For context, Putin wants Ukrainedemilitarize, to modify its constitution to enshrine NATO neutrality, recognizing Crimea as Russian territory and recognizing the breakaway republics of Donetsk and Lugansk as independent states. These are all non-starting terms for Ukraine.

In all casesI always believing that cooler heads will prevail and military hostilities will subside soon either way, so I remain cautiously bullish on equities over a medium-term horizon, Above all that the conflict has caused a accommodative reassessment by central banks (Fed, ECB).

However, I also recognize that the situation is fluid and any miscalculation can exacerbate the crisis, so I would avoid high beta stocks in cyclical sectors and focus on quality and defensive stocks. for the moment, at least until the dust settles. At the same time, I would be inclined to increase exposure to energy, metals and agricultural commodities given their value profile (USO, XOP, WEAT, DBB, DBA looks attractive for tactical games). The latter trade may perform well if current or new sanctions against Russia significantly reduce its exports, exacerbating imbalances between supply and demand. for raw materials (Russia is a commodity powerhouse)

Turning our attention to the Nasdaq 100, the index has officially entered the bear market as mentioned earlier. That said, the tech picture isn’t pretty for the tech referenceespecially after the development with a cross of death on the daily chart last week. With extremely fragile sentiment and elevated market volatility, bearish buyers will be reluctant to step in to buy risky assets despite depressed prices. This could leave the Nasdaq 100 in a precarious position and vulnerable to a retest of the 2022 low in the very near term.

However, it is important to emphasize a critical point: if the military conflict in Eastern Europe deescalates and sentiment improves, we could see a furious rally in the Nasdaq 100 given its fall in 2022 and its oversold condition. In the event of a bullish reversal, resistance can be seen at 13,750 and then at 14,000. the price reaches disengage these obstacles, the next upside target appears about 14.453the 38.2% Fibonacci retracement of the November 2021/February 2022 decline.


Nasdaq 100 (NDX) Chart Prepared in TradingView


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—Written by Diego Colman, Contributor

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