Nasdaq 100: Retreats as tech bears the brunt of the damage

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Mixed performance across US sectors

US sector performance was mixed yesterday. Energy and utilities outperformed, but still showed sub-1% gains. They were followed by industrials. The sectors suffering most were tech, communication, and then consumer discretionary. This is considered the worst combination for this tech-heavy index, which naturally underperformed against both Dow 30 and S&P 500 for the session.

Central bank's perspective on inflation and interest rates

There was plenty of central bank speak to digest. Chief amongst them was the Federal Reserve’s (Fed) Chairman Powell. He spoke of likelier rate hikes this year even though inflation "has moderated somewhat since the middle of last year," the "pressures continue to run high." There's "a long way to go" to bring it back down to the central bank's 2% target.

Furthermore, the effects of monetary tightening hitting "the most interest rate-sensitive sectors" have yet to properly reach the rest. More time is needed "for the full effects of monetary restraint to be realized." However, any rate increases will be "at a more moderate pace" from here on out. The Fed’s Bostic, on the other hand, spoke of holding rates instead.

Trends in Treasury yields and market pricing

Treasury yields were mixed. Most lacked real change across the curve and were slightly lower in real terms. Breakeven inflation rates continued to oscillate around a lower average. Market pricing (Refinitiv) still showed a majority expecting a final 25bp (basis point) hike in July from the Fed. This rate is expected to hold for the remainder of this year.

Upcoming US economic data and Fed testimony

There was little US economic data to process yesterday. The weekly MBA mortgage applications rose a small 0.5%. However, there will be plenty on offer today. We expect to see existing home sales for May, Chicago and Kansas Fed activity indices, and the weekly claims. It’s also day two of Fed Chairman Powell’s testimony.

Nasdaq technical analysis, overview, strategies, and levels

We saw prices twice failing to recover off its previous 1st Resistance level stopping out conformist buy-after-reversals and favoring contrarian sell-breakouts on the move down to just above its previous 2nd Resistance level. This occurred after what had generally been more favorable moves for reversals given plenty of sessions where the price action was relatively contained.

In all, it’ll require more to undo its current technical overview of a stalling bull trend, and especially on the weekly chart given the margin between price and key indicators in that longer-term time frame.

In terms of the Nasdaq 100’s component performance by the close, it showed Dollar Tree on top thanks to maintaining its full-year fiscal outlook and Q2 earnings guidance, but on the other end Rivian, Intel (restricting its manufacturing business), AMD, and heavyweight Tesla (Barclays downgrade) suffering heavily.

IG client* and CoT** sentiment for the Nasdaq

When it comes to retail traders (blue-dotted line in chart below, as % long using the left axis), there’s been a significant unwind in majority sell bias due to the pullback since last Friday where it reached a heavy sell 73%.

It dropped to 68% as of yesterday morning, and the negative finish yesterday has taken it out of heavy short territory for the first time in nearly two weeks and at 62% as of this morning.

CoT speculators (green-dotted line) have been in majority buy territory throughout this period though mostly hovering near the middle opting not to take on heavy long bias, and shifted from majority short back in mid-April.

Nasdaq chart with retail and institutional sentiment

^{*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.}