NAS100 Rebounds After 1+ Year Lows, Still in Bear Territory

Hurt by Higher Interest Rates

The US Federal Reserve hiked rates for the first time since 2018 in March and doubled down on monetary tightening this month, with the biggest increase in more than 20 years, also announcing a balance sheet reduction plan form June.

The central bank's actions are driven by soaring Inflation, which Chair Powell said is "much too high", pointing to more half-percentage point hikes over the next couple of meeting, but essentially ruled out bigger 75 basis points moves. ^[1]

High interest and inflation rates create an unfavorable environment for the tech sector and growth stocks, as along with growth fears markets tend to turn towards defensive stocks, such as consumer staples and utilities.

Underwhelming Tech Earnings

The US earnings season winds down after a few intense weeks, which were largely dominated by the tech sector. The FAANGs and other tech giants offered mostly poor quarterly results, further weighing on the index.

Tech and retail juggernaut Amazon.com (AMZN) for example, posted its first quarterly Loss in seven years. It announced a Net Loss of $3.844 billion in the first quarter of the year and a drop in Operating Margin to 3.2% compared to 8.2% a year ago. ^[2]

Streaming giant Netflix (NFLX) shocked investors with the loss of 200,000 paid subscribers in Q1, the first decrease in its user base since 2011, citing increased competition and the discontinuation of its Russian operations as some key factors for this. ^[3]

Apple (AAPL) also underwhelmed with its 9% year-over-year Revenue growth and disappointed markets, with $4 - $8 billion sales warnings for the current quarter, due to supply constraints. ^[4], ^[5]

FXCM's FAANG Stock Basket is down more than 4% on the month at the time of writing, following April's plunge.

NAS100 in Bear Territory

The tech index may have risen in March despite the Fed's interest rates lift-off, as this was well telegraphed, but the realities of the aggressive and front-loaded monetary tightening settled in and this year's decline continues.

That month is the only profitable one so far in 2022 and NAS100 is firmly in bear territory, having lost more than 20% from the November 2021 record high (16,711).

SPX500 and US30 are also having a bad year, as markets grapple with various risk factors, but they have both lost less than 20% from their all-time highs, which is generally viewed as the threshold for a bear market.

NAS100 Near-Term Analysis

The index started the day with a drop to the lowest level since late 2020 (12,105), but moves to profitable territory, as sentiment shows improvement and markets try shake-off recent worries over the war in Ukraine and its economic implications, the Covid-19 situation in China and other risk factors, ahead of Wednesday's US CPI Inflation.

A 700-900 pips rebound from the new low would be consistent with recent corrective efforts and a relief rally towards 12,853-13,000 would not be surprising, although a larger advance towards the EMA200 (at around 12,600-12,700) seems like a tall order under the current conditions.

Despite today's upbeat mood, NAS100 is in a precarious position and in risk of breaching 12,000, but bears will likely need fresh impetus for sub-11,513 moves.