Nasdaq Composite: The tunnel effect on a Fed panicked by inflation

(News Bulletin 247) – Despite closing very slightly up (+0.18%), the Nasdaq Composite index traced a fifth consecutive red candle on Tuesday, on the eve of the outcome of a new FOMC (political meeting monetary policy of the Fed). The Fed, which has the heavy task of having to deal with galloping inflation, even if it means curbing growth that is already more than fragile. The fear of the Fed is called inflation, and the fear of a price/wage loop entering forces the members of the board to a very offensive monetary policy.

Thomas Costerg, Senior US Economist, of Pictet Wealth Management even goes so far as to believe that the “Fed even seems to want to hope for a mini-recession to stem inflation”…

“It goes against the historic DNA of the Fed, to avoid recessions at all costs. When will the Fed return to a more serene reaction function and more in line with its core values? We previously thought this change in philosophy would be over the summer, but now it looks like the Fed may stay in its “panic tunnel” longer than expected. This will have consequences for economic growth, which risks to suffer the blow while the sensitivity of the United States to interest rates is very high in a context of still very substantial public and private debt.

It must be said that the question of the “peak” of inflation has had its day. The latest CPI figures show persistently high inflation, at 8.6% in May, at an annualized rate, food and energy included.

The Fed will therefore raise its Fed Funds this day of 0.50% minimum, with a possibility of +0.75% (75 basis points). Verdict this Wednesday at 8:00 p.m. (Paris time) for the monetary policy verdict itself and at 8:30 p.m. for a very high-stakes press conference.

“The market is now anticipating a 75bp hike in key rates in September, compared to 25bp a week ago! little water in his wine to avoid too harsh a landing still exists”, tempers Thomas Giudici (AURIS Gestion). Banks Goldman Sachs and JP Morgan are now also pricing in a 75bp hike in the cost of money.

To follow as a priority on the statistical agenda this Wednesday, across the Atlantic, retail sales at 2:30 p.m., the manufacturing index Empire State at 2:30 p.m., NAHB Residential Property Market Index at 4:00 p.m., Crude Inventories at 4:00 p.m. The monetary appointments to tick are naturally the outcome of the FOMC at 8:00 p.m. and the Fed press conference at 8:30 p.m. Also to follow is a speech by Mrs. C Lagarde at 4:20 p.m. at the London School of Economics.

KEY GRAPHIC ELEMENTS

The narrow 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 lit up 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 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.

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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