Piece written by Alexa Smith, Trive Financial Market Analyst
The Invesco Nasdaq 100 ETF (QQQM) gapped down due to the sustained elevation of 10-year Treasury yields, which reached multi-year highs. The surge in benchmark 10-year Treasury yields to levels unseen in 16 years followed the Federal Reserve’s recent unveiling of a hawkish long-term rate outlook. Moreover, sentiment struggled to grapple with the potential ramifications of prolonged periods of elevated interest rates and the consequential economic fallout.
Adding to the apprehension is the looming possibility of a US government shutdown as the Republicans and the Democrats reach an impasse over public spending cuts, a situation that could have adverse consequences on the nation’s creditworthiness.
Giant-cap stocks, which have been instrumental in propelling market indices upward throughout the year, were dragged further into the red as sentiment began to weigh in on the impact of high costs on the tech sector. Five of the seven largest stocks by market cap registered significant declines, as seen from the graph below, with Nvidia (ISIN: US67066G1040) and Amazon (ISIN: US0231351067) reporting total returns of -8.72% and -15.08%, respectively.
Attention is firmly fixed on Friday’s release of the personal consumption expenditures price indices, which promise a fresh perspective on the inflationary landscape. With the dissemination of various data, including figures on second-quarter gross domestic product and insights from Federal Reserve policymakers, the state of the equity market hangs in the balance.
Technical
The Invesco Nasdaq 100 ETF traded within an ascending channel pattern on the 1D Chart, but the Federal Reserve’s decision to keep interest rates elevated for longer overshadowed the firm uptrend and saw the ETF gap down. Since the gap down took the ETF out of the ascending channel and below the pivotal 100-day moving average, a broader downtrend may be imminent.
However, the ETF cushioned at the $146.53 support at the 23.60% Fibonacci Retracement level, which could bolster the price action upwards due to oversold levels. In this case, the $148.82 resistance at the 100-day moving average may mark a pivot point for a reversal towards the $159.37 resistance. Nevertheless, the price action has already broken down the $146.53 level, which could see the ETF edge towards the $138.59 support denoted by the 38.20% Fibonacci Retracement in an attempt to retest lower support levels.
Summary
The Invesco Nasdaq 100 ETF experienced a significant decline due to a hawkish outlook from the Federal Reserve. Concerns over prolonged high interest rates and a potential US government shutdown could add to apprehensions and see the ETF retest the $138.59 support. However, upcoming economic data and Federal Reserve insights could showcase a resilient US economy and set the ETF’s sights on the $148.82 denoted by the 100-day moving average.
Sources: TradingView, Reuters, The Guardian, Koyfin
