Last Friday the NFP report surprised everyone with a 517K gain vs. 185K expected. The number was much higher than even the most optimistic forecasts. The unemployment rate fell to 3.4%, the lowest in 53 years. This brought back fears of a possible reacceleration in inflation as the labour market is still extremely tight and wages may start to rise again.
The Fed is trying to get inflation back to its 2% target and it’s hard to envision such a scenario with a labour market this strong. Inflation may get to 3% or 4%, which would be a failure for the Fed and if too much time passes by, people may start to change their expectations around the 2% inflation, which would make the Fed’s job even harder.
The ISM Services PMI report also showed a reacceleration in economic activity for the Services sector as the data made a big jump back into expansionary territory. If the market had doubts on the Fed’s willing to hike to 5.00-5.25% and stay there for longer, the last week should have cleared those doubts.
Nasdaq Composite Technical Analysis
On the daily chart above, we can see that the price after breaking out of the 10200-11500 range, rallied towards the next resistance at 12274 where it got rejected after the blockbuster NFP report. Given the new uncertainties on the monetary policy side, we can expect a pullback before another push higher.
On the 4 hour chart above, we can see that the blue upward trendline is now the support for the current uptrend.
If the price falls below the trendline and the previous resistance now turned support, the bears will regain control and target the lower band of the previous range at 10200. For the bulls a break above the 12274 resistance is needed to target the next resistance at 13191.
Drilling down to the 1 hour chart above, we can see the possible scenarios. From a risk management perspective, the bulls should wait for the price to retrace back to the trendline where there is also support from the previous swing high and a 61.8% Fibonacci retracement level.
The risk would be well defined. In case the price breaks down the trendline and the previous resistance turned support at 11500, it would open up opportunities for the bears to target the next support at 10200.
