FUNDAMENTAL
OVERVIEW
The Nasdaq has found some support from dovish Fed comments that pushed back
against an October rate hike and a softer than expected NFP report that lowered
the probability for the central bank action further.
Keep in mind, though, that the geopolitical picture hasn’t changed much as
the US-Iran stalemate continues to drag on. There are ominous tensions under
the hood as US credit spreads have been widening and that generally preceded
stock market’s corrections.
Chart: Nasdaq 100 vs US credit spreads (blue – inverted)
We can see the
divergence between credit spreads and the Nasdaq in the chart above. Credit
spreads are a useful indicator of financial conditions and risk appetite. When
growth expectations improve, credit spreads tighten and the risk sentiment
turns positive. On the other hand, when growth expectations deteriorate, credit
spreads widen and the risk sentiment turns negative.
This week, we don’t have much on the agenda, so the focus will likely be
on US-Iran developments. A breakthrough in negotiations
would be positive for the Nasdaq, as it would trigger further unwinding of
aggressive Fed rate hike expectations and improve the outlook for the economy.
Conversely, a prolonged stalemate or a deterioration in the situation could
continue to weigh on growth expectations and pressure the Nasdaq.
NASDAQ TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see the Nasdaq printed a new all-time high recently but failed to extend the
gains. We have a major upward trendline defining the bullish structure on this
timeframe. If we get a pullback, we can expect the buyers to lean on the
trendline with a defined risk below it to position for a rally into new record
highs. The sellers, on the other hand, will look for a break lower to extend
the correction into the 28,750 level next.
NASDAQ TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have the
swing low around the 30,100 level that could act as support. We can expect the
buyers to step in around the swing low, with a defined risk below it, to keep
pushing into new highs. The sellers, on the other hand, will look for a break
lower to pile in for a drop into the major trendline next.
NASDAQ TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline defining the current pullback. The sellers will
likely lean on the trendline, with a defined risk above it, to keep pushing
into new lows. The buyers, on the other hand, will look for a break higher to
increase the bullish bets into new record highs. The red lines define average daily range for today.
UPCOMING CATALYSTS
Todaywe get
the US ISM Services PMI. On Wednesday, we have the FOMC meeting minutes. On
Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude
the week with the University of Michigan Consumer Sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.