Nasdaq Composite: The CME FedWatch tool, a key to understanding

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The Nasdaq Composite (-1.18% Wednesday) continues its start to the year in decline with renewed tensions on bond yields. The 10-year US Treasuries have now reached the symbolic threshold of 5%, while operators are becoming a little more realistic about the timetable for lowering federal rates.

The CME’s FedWatch tool now puts the probability of a reduction in federal key rates at 66% in March, while this figure peaked at 84% at the end of 2023. The tool is developed by CME Group (from the merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT)) based on Fed Funds futures.

The Fed Minutes, published last night, somewhat confirmed this. This traditional report from the Fed’s last monetary policy meeting. In a word, the markets are returning to more realism about the timetable for rate cuts. Especially on the first. The Federal Reserve’s minutes, published after the European markets closed, set the record straight a little. They showed that its members are overall much less confident than the market in the scenario of a first monetary easing from March.

In this context, the federal employment report NFP (for Non Farm Payrolls) will be scrutinized. The measurement of employment tensions is closely linked to the outlook for inflation in the months to come. In the meantime, operators were able to see a preview just now, with the ADP survey. This report from the private human resources firm highlighted job creations of around 164,000, much more than the consensus would suggest. Furthermore, weekly registrations for unemployment benefits stood at 202,000, again very close to the threshold of 200,000 new units. Enough to further tighten the markets before the NFP tomorrow.

Here are the different consensuses: +0.3% for average hourly wages, 168,000 job creations, and an unemployment rate up slightly to 3.8% of the active population. Remember that the scope of this report is private non-agricultural employment.

The pre-opening data suggests a new complicated start to the session for the flagship index of technology stocks on the American stock market.

KEY GRAPHIC ELEMENTS

Without doubting the upward nature of the underlying trend, the probabilities of entering a phase of moderate decline are taking shape. The oscillatory RSI (relative strength index) is also on the verge of cutting downwards its oversold line, which highlights a certain running out of steam in the buying camp, which is only succeeding with difficulty – and this is legitimate – to create new highs. The index has just, as a confirmation, started the year with a bearish gap below the symbolic 15,000 points. Before moving on to a second bearish gap, fill this one.

FORECAST

Based on the key chart factors we have mentioned, our view 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 resistance at 15160.00 points.

DAILY DATA CHART