Fundamental Overview
The Nasdaq yesterday sold off aggressively following the FOMC decision as the market perceived it as more hawkish than expected.
Overall, apart from some slight tweaks, the Fed was in line with the market’s expectations, and the selloff might have been an overreaction. There’s lots of algo-driven noise during such big events, so be careful of that.
The data is what really matters now as it will decide what the Fed is going to do. It will likely take just one soft CPI report in January to see the market reacting in a dovish way and print new all-time highs.
For now, the conditions for further upside remain in place. In fact, Trump’s policies should be a positive driver for growth in 2025 and with the Fed remaining in an easing cycle, growth should remain positive and might even accelerate as seen already recently by the Atlanta Fed GDPNow indicator.
The risk in 2025 is of course inflation and the Fed’s reaction function. Right now, the Fed’s reaction function is that a strong economy would warrant a slower pace in the easing cycle and not a tightening. That should still be supportive for the stock market.
If the Fed’s reaction function were to change to a potential tightening, then that will likely trigger a big correction in the stock market (if not even a bear market given the stretched valuations) on expected economic slowdown. For now, we remain in a “buy the dip” environment.
Nasdaq Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Nasdaq sold off aggressively into the key support zone around the 21338 level where we had also the major trendline for confluence. The buyers stepped in with a defined risk below the trendline to position for a rally into a new all-time high. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 20381 level next.
Nasdaq Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the dip buyers entering the market around the lows with a defined risk below the trendline. The sellers will need a break below the trendline to keep targeting new lows.
Nasdaq Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the buyers will keep on piling in around these levels to position for a new all-time high, while the sellers will wait for a break below the trendline to increase the bearish momentum. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the latest US jobless claims figures, while tomorrow we conclude the week with the US PCE data.