FUNDAMENTAL OVERVIEW
The Nasdaq failed to rally on the slightly soft US CPI report last Friday and continued to range. We now have another major risk for the market as a potential US-Iran war could trigger a big selloff. In fact, we got a report from Axios yesterday suggesting that a war between the U.S. and Iran now appears increasingly likely. According to the sources cited, there is currently no sign of a diplomatic breakthrough between Washington and Tehran, which is irritating Trump.
They also noted that, given Trump’s recent military build-up and escalated rhetoric, it may be difficult for him to de-escalate without Iran offering significant concessions on its nuclear program. The report added that any military operation in Iran would be massive, involving a weeks-long campaign that would resemble a full-fledged war.
If a military conflict were to break out, we would see oil prices skyrocket due to the risk of disruption in the Strait of Hormuz, especially in light of the recent military drills. 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.
Another important event is tomorrow’s potential US Supreme Court decision on Trump’s tariffs. In fact, if the Supreme Court were to rule against the tariffs, we will likely see the stock market rallying on positive growth expectations but the weekend risk around Iran could keep a lid on gains. Traders will likely err on the cautious side heading into the weekend.
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 a downward trendline defining the bearish momentum. The sellers continue to lean on the trendline with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will want to see the break higher to pile in for a rally into the 25,400 level next.
NASDAQ TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here but the most recent higher low around the 24,750 level defines the bullish structure on this timeframe. If the price falls to that level, we can expect the dip-buyers to step in with a defined risk below the level to target a break above the downward trendline. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the February lows next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US Jobless Claims figures. Tomorrow, we conclude the week with the US Q4 GDP, the US PCE price index for December, the US Flash PMIs and a potential US Supreme Court decision on Trump’s tariffs. Watch out for US-Iran headlines as well.
