FUNDAMENTAL OVERVIEW
The Nasdaq continues to consolidate near monthly lows as weakness in software stocks has been putting a lid on the index. There’s also been lots of uncertainty on the macro and geopolitical side that’s been keeping the market on edge.
The risks we had were the US Supreme Court decision on tariffs, the Fed interest rates path and the potential US-Iran military escalation.
The US Supreme Court ruled against Trump’s reciprocal tariffs on Friday which triggered a short-term rally in the Nasdaq. Trump has already imposed new tariffs under a different law and USTR Greer has stated that the tariff deals remain in place and they will be honoured. The new levies reduce the effective average tariff rate, which could be a positive at the margin.
In terms of Fed interest rates path, the market is still pricing 57 bps of easing by year-end which could be at risk of a hawkish repricing on further improvement in the US labour market data. In fact, Fed’s Waller yesterday mentioned that he might want to hold rates steady if we see a repeat of the strong January’s NFP report. Therefore, next Friday is going to be key as good data could weigh on the market in the short-term on a hawkish repricing.
Lastly, we have the US-Iran military escalation risk. This is one of the biggest risks because if a military conflict were to break out, we would see oil prices skyrocket. This would be a negative shock for the global economy and lead to stagflation risks. The first reaction in the markets would be strong risk aversion. We would highly likely see a huge selloff in the stock market as future growth expectations would turn negative.
To sum up, there are lots of downside risks at the moment with little reasons for a rally into new all-time highs. The macro backdrop is still positive given the easing inflation and improving labour market, but that could change quickly, so traders will need to be careful.
NASDAQ TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see the Nasdaq has been trading in a wide range since October of last year. Such long consolidations generally lead to big trending moves once the price breaks out. Until then, the market participants will continue to play the range.
NASDAQ TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the price broke above the downward trendline recently which could be a signal of more upside to come. For now, the price got stuck in a tight range between the 24,700 support and the 25,130 resistance. A break below the support will likely take us back to February lows, while an upside breakout should lead to a rally to the 25,400 level next.
NASDAQ TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will keep on stepping in around the support and increase the bullish bets on a break above the resistance, while the sellers will continue to pile in around the resistance and increase the bearish bets on a break below the support. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the weekly US ADP jobs data. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PPI report. Also, watch out for US-Iran headlines.
