Nasdaq Composite: A Transformed Market Matrix

(News Bulletin 247) – The first session of the week on Wall Street should start in the red, due to the rise of a notch in geopolitical tensions between NATO and Moscow. The Kremlin is now close to the Rubicon: it recognises, by openly supporting the separatists in Dombass, the independence of two regions in this eastern part of Ukraine, which constitutes an additional step in the escalation, and further materializes entering a new Cold War with the West. This adds a form of uncertainty at the very moment when, as shown by Jean-Jacques Friedman (Investment Director of VEGA IM), “a kind of hidden crash of the Nasdaq for almost a year, almost half of the rating having lost between 30% and 50% of its value.”

“The loss by Meta (Facebook’s parent company) of a quarter of its value in one day (i.e. more than 200 billion in capitalization), came as a reminder that a form of contamination could occur between fragile American growth stocks – which have been correcting for a year – and quality stocks – with real competitive advantages, but with valuations above their historical average.”

On the statistical side, we will follow the manufacturing and service PMIs on Monday at 3:45 p.m. The agenda will expand throughout the week, culminating on Thursday with the PCE (Personal Consumption Expenditures) price index, the measure of choice for the Fed in the construction of monetary policy. Because the Ukrainian file, as burning as it is, should not make us forget the essential matrix of work that monetary policies constitute on both sides of the Atlantic. But the degree of aggressiveness of the Fed in March is not yet perfectly legible. “We are monitoring the risk of overly aggressive tightening by the Fed, which could lead to a marked economic slowdown and a widening of credit spreads”, warns César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management.

“Markets still don’t know what the Fed’s scheduled March meeting has in store. Few central bank officials have spoken in the past week, making expectations difficult. Governors appear to be evenly split between ‘hawks’ and “doves,” the minutes from their last monetary policy meeting showing that voting members remained sharply divided, both on the pace of interest rate hikes and on shrinking the Fed’s balance sheet.”

As a reminder, Wall Street remained closed yesterday due to a holiday (President’s Day).

KEY GRAPHIC ELEMENTS

let’s stop for a moment on the combination of candles validated on Thursday 01/20, firmly campaigning for a continuation of the ebb: a structure known as three black strings. The three black ravens are sometimes called “three-winged raven”, a term that comes from a Japanese expression saying that “bad news has wings”. This combination portends prices to fall if they appear at market highs or during an uptrend. Visually, the 3 crows are 3 black candlesticks, combining the following 2 characteristics:

1) All 3 candlesticks close at or near their lows. 2) Each open must be inside the body of the previous candle.

The structure is therefore fully validated and the thick and constant volumes on the three candles highlight its direction, in a market worried about the rise in long-term government bond yields.

In the end, over the whole of week 03, and on high cumulative volumes, the index will have closed on its session lows four times. In weekly data, this is the third time that it has closed on (or almost on) its weekly lows. The oblique line symbolizing the underlying trend was broken, and after a pullback on January 12, the index started falling again on January 13, with investors mobilizing throughout the session. Since then, the index has almost returned to levels where it had drawn a W on the slant last May. Breaking these levels would be problematic.

In the immediate future, the hanging candle drawn on Wednesday 02/02 on confirmation of the price/volume divergence, immediately followed by a bearish gap, calls for the greatest caution. Congestion is expected between 13,330 points and 14,445 points, ie a wide band where operators’ nervousness can be expressed. In case of exit from below, especially in thick volumes, the technical situation becomes problematic. Week 07 is therefore very technically challenging. The important weekly closing level is practically at the lows of the week.

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 14445.00 points.

CHART IN DAILY DATA

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