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FUNDAMENTAL
OVERVIEW
The Nasdaq is currently trading at the same levels we’ve seen in May. The
index has been pretty much rangebound with high volatility for four months. The
two main reasons for such underperformance are Fed tightening risks and the
US-Iran war, as they both negative drivers for future growth.
The problem is that these negative factors happened when positioning was
heavily lopsided. In fact, tech stocks, especially semiconductors, were the
most crowded trades on record. As macro conditions changed, we’ve started to see
deleveraging across the board.
The latest push lower was triggered by the hawkish Fed Chair Warsh’s speech
that retightened financial conditions and led to a hawkish repricing in
interest rate expectations. The probabilities for a rate hike in September
jumped from 33% to 60%.
Warsh has also reiterated that the Fed is
focused solely on inflation now and mentioned that the progress has been slow.
For this reason, I think only a soft US CPI report
could bring the probabilities below 50% and deter the Fed from hiking at the
upcoming meeting.
If the probabilities stay at
or above 50%, the Fed might be forced to hike regardless because failure to do
so would send a dovish message and ease financial conditions again.
For now, the upside in the Nasdaq remains limited by hawkish expectations
and the escalation of the US-Iran war. The best-case scenario would be a soft
US CPI coupled with a de-escalation in the Middle East. The worst-case
scenario, on the other hand, would be a hot CPI without a de-escalation which
could send the market to the lows seen in July.
NASDAQ TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see the Nasdaq found support around the 28,950 level. If the price pulls
back into the support again, we can expect the buyers to step in with a defined
risk below the support to position for a rally into the all-time highs. The
sellers, on the other hand, will want to see the price breaking lower to pile in
for a drop into the July’s low around the 27,200 level.
NASDAQ TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have a clear
range between the 28,950 support and the 29,800 resistance. The market
participants will likely continue to play the range by buying at support and
selling at resistance until we get a breakout on either side.
NASDAQ TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have
a downward trendline defining the bearish momentum since Warsh’s hawkish speech
and an upward trendline defining the recent pullback. The buyers will likely continue
to lean on the upward trendline to keep pushing into the resistance, while the
sellers will look for a rejection around the downward trendline and a break
below the upward one to target a break below the support. The red lines define average daily range for today.
UPCOMING CATALYSTS
Today, we have
Fed’s Waller speaking, the US Jobless Claims data and the US ISM Services PMI. Tomorrow,
we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.
