Nasdaq Composite: The Fed plays its card at 75 points

(News Bulletin 247) – The Nasdaq Composite (+2.50% yesterday to 11,099 points) will initially have reacted positively to the announcements of the Fed and the ECB, which for the latter urgently convened an extraordinary meeting of its Board Governors. The Fed, for its part, was completing a traditional FOMC at the end of which the Fed Funds were raised by 75 basis points, a scenario which had already been partially digested by the market, but which inevitably causes tensions on the bond market. A single glance at the barometer of Treasuries 10 years is proof of that. Yields on US LT government bonds are now quietly heading towards 3.50%. This is already weighing on the assets most sensitive to the issue, and in particular the growth technology heavyweights…

William Gerlach, Country Manager France at international payments player iBanFirst, notes that this is “the biggest increase since 1994”. “It translates a sense of panic within the central bank as inflation creeps dangerously close to the symbolic 10% threshold (which should be reached within a few months, according to [iBanFirst]).”

In terms of statistical figures yesterday, everything was off target yesterday, whether for the dynamics of industrial production in the Euro Zone, and for the United States: retail sales (-0.3% in monthly data), the the Empire State manufacturing index which swings into negative territory, or import prices… And again this Wednesday, with among other festivities, the manufacturing index Empire State, weekly registrations (+229K) for unemployment benefits or housing starts & building permits. The only relative advantage that investors can see in this bad series of statistics this week is the hope of a less heavy hand from the Fed at the next FOMC. Pigs already have the date of July 28th.

KEY GRAPHIC ELEMENTS

The working matrix remains unchanged, bearish in spite of the moreover timid reaction yesterday with regard to the initial ebb.

The thin trading range that we identified between 13,330 and 13,838 points was broken under conditions of volumes, volatility, and very significant candles. The marubozu plotted on Thursday 04/21 shows in particular a mobilization of the selling side throughout the session, until a close almost exactly on the low points, opening the way to a bearish target CT at 12,640 points. The latter was broken, after a hesitantly nervous hesitation on the second part of week 17.

The warnings then came on and have not gone out permanently since. The harami envisaged on Monday has not been validated, and the relatively large candle, by its lower shadow, can serve as a framework for the start of a short-term bearish inflection. The reintegration of the lower part of the 20-day moving average (in dark blue), validated, brings a clear bearish message.

Friday’s closing level off the weekly lows, which we put on watch, brings an additional bearish reading. The very clear price / volume divergence has been unappealing since May 25, was followed by a release of selling energy out of the bottom of a micro-diamond, followed by the formation of two large bearish gaps, the last of which was only partially regained yesterday.

FORECAST

Considering the key chart factors we have mentioned, our opinion is negative on the Nasdaq Composite index in the short term.

This bearish scenario is valid as long as the Nasdaq Composite index is trading below the resistance at 12140.00 points.

CHART IN DAILY DATA

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