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Technical Analysis Nd100 : 2015-06-15

Fed rate hike may cause pullback

Let us consider the CFD on NASDAQ 100 (Nd100). It is traded in US dollars and includes 100 stocks of high-tech companies. Nd100 has advanced 4.5% since the beginning of the year, outpacing both the S&P 500 ( 1,1%) and the Dow Jones (-0,1%). In general, last time the US stock market pulled back 10% and even more a long time ago, in May 2011. After that, it was only growing. We expect that in case of another correction, Nd100 will fall deeper than other indices due to its inherent high volatility. A bearish momentum can be caused by the Greek crisis, as well as some difficulties in the high-tech sector in the US. For example, two-thirds of companies listed in Nasdaq Biotech Index were unprofitable last year. The ratio of capitalization/net profit of this index is about 50, while NASDAQ 100 has it at 20.8. The number of US companies that went bust in the first quarter of this year is twice bigger than there were in the first quarter of 2014. US Industrial production in May slipped 0.2%. Last time it increased only in November 2014. Investors attribute this to the influence of a "strong" dollar. Meanwhile, the anticipated Fed rate hike may raise the credit burden on business and result in further decline of financial performance. Recall that at the next Fed meeting due on Wednesday an explanation of its plans in monetary policy might appear.

PCI

On the daily chart the Nd100 broke down the support level of the uptrend, which lasted since early 2015. Note that this is the second time happening since such first breakout was false. Parabolic formed a sell signal. Bollinger Bands narrowed significantly, which could mean lower volatility. MACD has been demonstrating a bearish signal for long. Its last bar is formed below the zero line. RSI has strengthened the bearish bias, which, in our opinion, is not divergence. It still hasn’t reached the oversold zone. There is a possibility of further bearish momentum development after the Nd100 candlestick is closed below fractal low at 4379. Stop loss is to be placed at the last Parabolic point and above the fractal high at 4521, or the last local peak at 4563. After pending order placing, Stop loss is to be moved every four hours to the next fractal high, following Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most careful investors may switch to the H4 timeframe and place a Stop loss, moving it after the trend. If the price meets the Stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.

 

Position Sell
Sell stop below 4379
Stop loss above 4521 or 4563


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