Nasdaq pullback reaches crossroad, ASX 200 bulls eye sympathy bounce. July 25, 2024

After a hefty pullback, 19k looms for Nasdaq futures traders. Yet the higher timeframes suggests there could further downside even if it manages a bounce from nearby support. The ASX may fare better as its pullback is so far pale in comparison.

By :Matt Simpson, Market Analyst

I’m sure you have noticed by now that markets have entered a risk-off phase, with global indices falling alongside commodities and key commodity currencies such as the Canadian, Australian and New Zealand dollar. And a tell tale sign that investors are flocking to cash is that we’re also seeing gold fall alongside bond prices at the longer end of the curve, which are sending yields higher as they demand extra premium for holding such risk.

The question now is how much extra juice remains in these bearish moves. With investors on high alert for doom and gloom, a soft US GDP print could exacerbate the risk-off tone and send respective markets lower with sentiment. For a long while, Wall Street had rallied on ‘bad news is good’ as it justified Fed cuts for a soft landing. But if data deteriorates too quickly, I struggle to see how it translates to strong forward earnings or a higher stock market in general. We also have earnings to factor in, which has so far underperformed where big tech is concerned.

Nasdaq 100 technical analysis:

The Nasdaq is amid its third pullback of its technical bull market, from the 2020 low. A bull market is defined as a 20% rally from the respective low. While many prefer to use the close price, I prefer to use the actual high or low prices as a personal preference.

The Nasdaq is not officially within a technical correction using the -10% threshold, but most would agree it is indeed within one. I suspect the Nasdaq is headed for 19k regardless of what happens next, although support is close by to prompt a potential bounce, including the 20-week MA/EMA and 19,000 handle. The weekly RSI (2) is also nearing oversold.

Yet the magnitude of losses seen in the past two weeks suggests it could be setting up for a deeper pullback. For reference, a -12.5% correction like seen by October’s low would take prices down to 18,360 should a retracement of similar depth occur from its current all-time high (ATH). A break below 19,000 brings the 18,500 and 17,400 come into focus for bears.

The daily chart shows a high-volume bearish candle formed on Wednesday, which also broke below the monthly pivot point (19,622). The RSI (14) is confirming the move lower but not yet oversold. A move to 19k today seems more likely than not, and if that prompts a ‘profit-taking’ bounce, bears may still seek to reload whilst prices remain below the 19,622 – 19,728 resistance zone. A break below the monthly S1 (18,954) brings 18,500 into focus.

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ASX 200 futures (SPI 200) technical analysis:

It is no surprise to see that the carnage from Wall Street has spilled over to the APAC region and weighed on the ASX 200. Yet the fallout has so far been less severe for the local market. On the flip side, its rally to its ATH was also less impressive.

A bearish pinbar candle formed on the ASX 200 last week at the record high, and this week’s selloff has sent it to a 2-week low. Yet despite this, the bull trend’s structure remains intact. I am not expecting the ASX 200 to simply break to new highs from here, but its pullback could be less severe than what we have seen on Wall Street.

Besides, the ASX 200 is within a third leg lower from its ATH and support levels are nearby, including the June high (7833), 50-day AMA (7825) and 50-day MA (7811). Given the averages also coincide with a prior breakout area, I suspect bulls can support prices above the 7800 – 78300 region for now and perform at least a modest bounce. The magnitude of any such bounce is likely in the hands of Wall Street, because if momentum turns lower the ASX 200 could be headed for the 7770 region, where a high-volume node (HVN) resides from the prior consolidation and 50% retracement level.

– Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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