The Nasdaq100 index showed significant growth in the month of May, leading the US indices upwards and indirectly impacting markets globally. As of Thursday, the index was approaching the 19,000 level, exhibiting an impressive 11% increase from the lows recorded on April 19th. However, amidst this growth, a wave of selloffs occurred causing a 2% decline from the peak to the bottom, raising concerns about the possibility of a long correction period.
From a technical standpoint, the Nasdaq100 index is currently hovering at the overbought zone on the RSI indicator on daily timeframes. Despite the common belief that entering this zone may result in intense growth, it is also seen as less predictable. The sustained interest from buyers can be attributed to the index being only 1% above the previous peak. The correction observed in April following the peak helped alleviate some of the short-term overheating in the market. Additionally, looking back at the correction that took place from July to October last year, it aligns with a classic Fibonacci pattern, bringing the index close to the 61.8% retracement level of the original rally and just a hair away from the 200-day moving average. The next potential target for the index based on this pattern would be around 19200, marking a 161.8% rally. It is evident that the Nasdaq100 is approaching a crucial resistance area, but there is a possibility that it may consolidate before continuing its upward trajectory.
In this scenario, it is essential to consider the market sentiment and economic data that could influence the future direction of the index. Despite the recent profit-taking and concerns about tighter monetary policy due to strong macroeconomic data, it is not adequate to trigger a bear market in equities. Unless there is a significant shift in sentiment or a deterioration in economic indicators, a steady decline in equity indices is not expected. It is important to note that a drop below the previous consolidation level around 18300 could signal a potential trend reversal for the Nasdaq100 index.
While the Nasdaq100 index has shown remarkable growth in May, reaching critical technical levels and facing potential resistance, the overall sentiment and economic conditions do not point towards a prolonged bear market. Investors should remain vigilant and monitor key levels to make informed decisions amidst the ongoing market fluctuations.