Fundamental Overview
The Nasdaq has been on a steady decline since the last US CPI report on July 11th. In the first stages of the pullback, we’ve been seeing a rotation from big cap stocks into small cap stocks as the Russell 2000 displayed an opposite price action. Eventually, the bearish momentum picked up and we saw a more aggressive decline with the index falling by 10%.
A good argument has been that most of the moves we’ve been seeing were driven by deleveraging from strengthening Yen. Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could have been the reason indeed.
It seems like the correlation with the Yen has finally faded now that the BoJ decision is in the rear-view mirror. Moreover, we had the FOMC rate decision yesterday and as expected it was a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even close the door for “several” rate cuts before the end of the year. The market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment as the Fed is going to cut rates into resilient growth.
Nasdaq Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Nasdaq eventually bounced on the major trendline around the 18900 level. The buyers stepped in with a defined risk below the trendline to position for a rally into a new all-time high. The sellers will need the price to fall back to the trendline and break below it to start looking for new lows.
Nasdaq Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price yesterday broke above the key downward trendline and the resistance zone around the 19350 level. The resistance now turned support and we have also the 38.2% Fibonacci retracement level there for confluence.
If we get a pullback from the current levels, that’s where the buyers will likely step in with a defined risk below the support to position for new highs. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop back into the major trendline targeting a break below it.
Nasdaq Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is getting rejected from a strong resistance zone around the 19700 level. If the price were to break higher, we can expect the buyers to increase the bullish bets into new highs.
The sellers, on the other hand, will likely step in around these levels with a defined risk above the resistance to position for a drop into the major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Tomorrow, we conclude the week with the US NFP report.
