Fundamental Overview
The upside for the Nasdaq has been supported all along since the April 9 tariff pause by the lack of bearish drivers. In fact, we continued to see a general de-escalation in trade war that triggered a positive repricing in growth expectations and boosted risk assets. Now, we reached the peak in this trade as we got the deals in the expected 10-20% range.
The focus now switched back to the Fed and the interest rates path. The Fed’s decision this week was very much expected and didn’t move the market at all. Rates were kept unchanged, and Waller and Bowman dissented voting for a cut. The only change in the statement was the removal of the line saying that “uncertainty has diminished”. That was less dovish than expected but was ignored as everyone was focused on the Press Conference.
The Press Conference is what moved the market. In fact, the market was expecting Fed Chair Powell to open the door for a rate cut in September conditional on the data, but he didn’t say that. He just dodged the questions by telling reporters that they would look at the totality of the data. That was interpreted as more hawkish than expected.
The market dropped but the losses were quickly erased following the strong beats from Microsoft and especially Meta. Unfortunately, as it usually happens, earnings-driven moves were eventually faded and the macro drivers got us to even lower prices.
The drop has likely been driven by hedging activity into the NFP and potentially some tariff angst with the higher rates for Canada and Switzerland.
The data is what really matters now. Central banks don’t matter much because they don’t offer forward guidance. They just delegate everything to the data. The data is what will drive their decisions. Therefore, watch the data carefully because hawkish data will likely trigger a correction as the market reprices expectations.
In the bigger picture, given that the Fed's reaction function remains to either wait more or cut, the market should eventually get back to its upward trend (barring growth scares).
Nasdaq Technical Analysis – Daily Timeframe
On the daily chart, we can see that the Nasdaq is currently pulling back as the less dovish than expected Powell triggered a hawkish repricing in interest rates expectations. We have an upward trendline defining the bullish momentum. The buyers will likely lean on it with a defined risk below it to position for a rally into a new all-time high. The sellers, on the other hand, will look for a break lower to increase the bearish bets into new lows.
Nasdaq Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have another minor upward trendline that’s being challenged now. The buyers will likely step in around these levels to position for a rally back into the highs, while the sellers will keep pushing into new lows with a defined risk above the trendline.
Nasdaq Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here as the buyers will likely step in around these levels, while the seller will keep pushing into new lows. We have a minor resistance zone around the 23,400 level. If we get a pullback, that’s where we can expect the sellers to step back in to target new lows, while the buyers will look for a breakout to increase the bullish bets into a new all-time high. The red lines define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the US NFP report and the US ISM Manufacturing PMI.
