4-hr US100: 700 Points Drop on the RadarFollowing the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's unexpected interest rate hike on Friday. The market reaction closely resembles the Yen carry trade unwind observed in August of last year, as investors are swiftly reallocating capital from high-risk assets such as equities to traditionally safer alternatives. The Japanese Yen, recognized as a classic safe-haven asset, has seen increased demand amid the current market uncertainty.
From a technical perspective, the US100 index currently exhibits an oversold condition, as indicated by the Relative Strength Index (RSI). However, the prevailing downward momentum remains robust, suggesting that a potential reversal may not be imminent. The price action has decisively breached multiple Fibonacci retracement levels in succession and is now approaching the critical 61.2% retracement level. Historically, this level has acted as a strong and final support zone. Should this support level fail to hold, further declines towards the 20,500 threshold and potentially lower levels should not be ruled out.
Market participants should exercise heightened caution, as the Federal Reserve is scheduled to convene this Wednesday, with an anticipated decision to maintain interest rates. This forthcoming announcement is likely to exert additional downward pressure on the US100 index. Nevertheless, given the sharp recent declines, short-term corrective pullbacks to the upside remain plausible.
In light of the current market conditions, a prudent trading approach would involve entering short positions only after the NASDAQ convincingly breaches and closes below the 61.2% Fibonacci retracement level, thereby confirming further bearish sentiment.
