This week’s major highlight was the Federal Reserve Chair Jerome Powell
speech at the Economic Club of New York on Thursday where he reiterated the
central bank’s preference for keeping interest rates steady at the next
meeting given the recent spike in long-term U.S. Treasury yields and
progress regarding inflation.
Jerome Powell also left open the possibility of future rate hikes if the
economy continues to show resilience. In response to his speech, short-term
Treasury yields declined while long-term yields rose, leading to a steeper
yield curve.
On the economic front, data this week presented a mixed picture.
Applications for U.S. unemployment benefits declined to the lowest level
since January, showing the labour market is still tight. Home sales have
fallen to their lowest level since 2010, while retail sale, industrial
production, and housing construction were ahead of forecasts.
While some of these developments were positive for stocks, reports of
renewed tensions in the Middle East, exerted downward pressure on the tech
index. Another central concern this week has been the surge in long-term
U.S. Treasury yields, which hit their highest level in 16 years.
The additional risk around the Middle East conflict and news that the Biden
administration plans to begin refilling its strategic oil reserves, pushed
energy prices higher, with WTI crude oil prices trading above $89.00 on
Friday, raising fresh concerns that inflation could persist for longer.
Should inflation remain elevated, it might require further tightening of
monetary policy.
The latest earnings results in the tech sector were mixed with Tesla shares
plunging after the EV maker missed margin forecasts, while digital
streaming giant Netflix surged after beating analysts’ estimates for new
customers.
Source: TradingView
The tech index has been trading lower this week amid rising geopolitical
tensions, as well as rising bets that the Federal Reserve will hold rates
higher for longer than initially anticipated. A large descending triangle
has formed on the daily chart showing that selling pressure is building up.
Generally, the pattern has bearish implications and points to lower levels
in the coming months.
Additionally, momentum conditions have deteriorated over the past two
months, with the Relative Strength Index (RSI) indicator fluctuating below
60%, which is a resistance level during bear markets.
While at this juncture in time there is no price reversal on the chart,
given the bearish implications from the descending triangle pattern and the
deterioration in momentum conditions, key support of 14,432 is likely to be
challenged. A subsequent break below that level appears likely, which in
turn could trigger further weakness in the range between 13,300 and 13,600.
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