Nasdaq Composite: Uncertainty over the extent of the rate cut

(News Bulletin 247) – Flat calm on the flagship index of technology stocks on the American stock market, before a historic decision by the Fed, that of lowering its rates. Yes, but to what extent. A very important issue for the Nasdaq Composite, which concentrates a number of files with very high PERs, and therefore sensitive to the bond issue.

It’s the big event of the week for the market: the outcome of the two-day meeting of the American Federal Reserve (Fed). The American central bank will give its verdict on rates at 8 p.m. and its chairman, Jerome Powell, will speak immediately afterwards.

In light of recent economic data, which have shown a worrying slowdown in the American economy, the market has already priced in a reduction in key rates. Jerome Powell himself had telegraphed this move during his speech in Jackson Hole at the end of August. The central banker had judged that the “time had come” for a “monetary policy adjustment”. A message received five out of five by investors.

Hitting hard at the start of the cycle (-50 bps), or initiating this easing process with flexibility (-25 bps): this is the challenge of this FOMC, which will be accompanied, as every quarter, by valuable indications: the new economic projections and the dot plots.

“Finally!” Christopher Dembik, investment strategy advisor at Pictet AM, also impatiently says. “The Fed will begin its monetary easing cycle this Wednesday. But not everyone agrees on the extent of the first rate cut. On the one hand, there are the pessimists who see the American economy on the brink of recession and are arguing in favor of a 50 basis point cut. On the other hand, there are the realists, of which we are one, who consider that the American economy is doing well.”

This rebalancing is evidence of uncertainty. “Market uncertainty about the Fed’s decision is the highest in over 15 years,” observed Xavier Chapard, strategist at LBPAM, on Wednesday morning. As a corollary to this significant uncertainty, the market has a good chance of being surprised, in one direction or another.

In the statistical chapter on Tuesday, across the Atlantic, if we exclude the automobile from the basket, retail sales in the United States fell by 0.1% over one month in August, missing an optimistic target of +0.2%. As for the monthly federal report on American industry, it is very satisfactory, both in terms of production (+0.8%) and that of the use of productive capacities (78%).

To follow the housing starts and building permits at 2:30 p.m. And of course at 8:00 p.m. the outcome of the Fed’s Monetary Policy Committee. A press conference is scheduled for 8:30 p.m.

KEY GRAPHIC ELEMENTS

While the 50-day moving average (in orange), in full bearish inflection, has just been tested again, in the heart of the Bollinger bands, a “contrarian trade” is a welcome recommendation. Especially since a bearish oblique (drawn in black) is starting to put pressure on prices. The test of this oblique line – a major test – is underway.

FORECAST

Considering 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 the resistance at 18030.00 points.

DAILY DATA CHART