Nasdaq 100: Underperforms as tech hit hardest

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Negative vibes

Market participants were on edge yesterday and were digesting both the Fitch downgrade prior to the United States’ long-term default rating from AAA to AA+ as well as plans from the US Treasury to increase auction sizes translating into more supply hitting the bond market.

That took Treasury yields higher for the session and more so on the further end, given how the focus will be on longer-term duration and not bills in the next phase. Yields also rose in real terms, and breakeven inflation rates fell back a bit.

Tech-Heavy Nasdaq underperforms

Higher yields are seen as a negative for growth stocks. As a result, sector performance by the close showed a couple of defensives in the green but the rest in the red. It was tech, communication, and consumer discretionary in the very bottom. That kind of combination usually spells the worst for the tech-heavy Nasdaq 100, and it easily underperformed against both Dow 30 and S&P 500 for the session.

Economic data and earnings in focus

There wasn’t a lot of economic data on offer yesterday. The weekly mortgage applications out of MBA were down 3%. While out of the labor market, there was ADP's (Automatic Data Processing) July non-farm estimate to process.

It showed an increase of 324K that was above estimates with lower revisions prior but comes after a significant miss last time around when compared to the market-moving Non-Farm Payrolls out of the Bureau of Labor Statistics. That will be released tomorrow, where expectations are it’ll be a much lower figure. We’ve got services PMIs (Purchasing Managers Index) today out of both S&P Global and ISM (Institute for Supply Management), and the weekly claims.

Awaiting Apple and Amazon

The fallout from the latest fundamental updates and upcoming data won’t be all that investors and traders will be paying attention to, as we’ve got earnings from plenty of this index’s components, chief amongst them Apple and Amazon.

Nasdaq technical analysis, overview, strategies, and levels

It wasn’t just an underperforming session, but one that had somewhat significant technical implications. Price went past its previous 1st and 2nd Support levels, stopping out conformist buy-after-reversals and giving contrarian sell-breakouts the win. It also caused an overview tilt to 'bull average' after its bull trend was 'stalling' prior.

We got a negative DMI (Directional Movement Index) cross by one calculation, though not yet by another. In the past, it failed to offer significant downside follow-through when we had a strong bull trend.

IG client* and CoT** sentiment for the Nasdaq

As for sentiment, retail traders were very much in favor of a pullback given they were holding a heavy sell 65% bias yesterday morning, since then dropping to a more moderate 57% level. That’s not too far off CoT speculators according to last Friday’s report, where they shifted from slight buy 51% to majority short 55% and (thus far) timing the pullback beautifully.

Nasdaq with retail and institutional sentiment chart

_{*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.}