Nasdaq 100: Difficult September start as tech plummets

Disappointing US data, chipmakers plummet, and the tech sector suffers most

A tough start for what is usually a tougher month for the stock market in terms of seasonality, as the first trading day of September for US stocks was met with a notable red session carrying some similarity with the plummet seen in early August. Chipmakers were in retreat where it was most notable for Nvidia (Bloomberg report that released after regarding DoJ subpoena certainly didn’t help), and sector performance by the close put tech in the very bottom, cyclicals also down, and only a couple defensive sectors avoiding a red finish. That meant the tech-heavy Nasdaq 100 suffered more than both S&P 500 and Dow 30, and in percentage terms the losses larger than the small-cap Russell 2000. Treasury yields finished the session notably lower and so too in real terms, market pricing (CME’s FedWatch) still fully pricing in a 25bp (basis point) rate cut out of the US Federal Reserve (Fed) in September and where the odds have risen but are still a minority that the first reduction in this cycle will be by 50bp.

Economic data out of the US released yesterday was a disappointment: ISM’s (Institute for Supply Management) manufacturing PMI (Purchasing Managers’ Index) improving to 47.2 but a miss and still in contraction territory with its new orders component worsening to 44.6, S&P Global’s reading also still sub-50 and slightly beneath estimates coming in at 47.9, construction spending m/m (month-on-month) for July falling 0.3%, and RCM/TIPP’s economic optimism print for September improving but a slight miss and still in pessimistic territory.

Job openings, factory orders, Fed’s Beige Book

Markets are quite twitchy at this stage, and while there’s more impacting data tomorrow (with services PMI) and the day after (with the market-moving Non-Farm Payrolls), it doesn’t mean there may not be overreaction to any single data point. Job openings (out of JOLTS) for the month of July releases later today, factory orders for the same month, the weekly mortgage applications, and the Fed’s Beige Book.

Nasdaq 100 Technical analysis, overview, strategies, and levels

Key technical indicators on the daily time frame are still mostly neutral but three have tilted since yesterday with price no longer above all its main short and long-term daily moving averages but instead beneath all of the former and needing to only get beneath the 200-day of the latter, on the DMI (Directional Movement Index) front the gap for the -DI over the +DI high enough to call it a ‘negative DMI’, an ADX (Average Directional Movement Index) rising and by one calculation near trending territory, the RSI (Relative Strength Index) getting closer to oversold territory, and price at the lower end of what have been narrow bands.

Price-indicator proximity and the narrowing of a couple key indicators has meant tilting them is an easier task at this stage, and jumping to a negative conclusion (combined with the fears on the fundamental front) might result in some shifting to a bearish overview. While that could occur with any further consistent and notable pullbacks in price, the technical overview is still ‘consolidation – volatile’ showing price won’t settle here, with outperformance for conformist sell-breakouts that struggled late last month on the lack of follow-through. Conformists are still for breakouts and for those that expect something bearish can make use of its sell-breakout strategy, while those expecting a recovery or at the very least oscillations here can borrow reversal strategies from the contrarian camp.

IG client* and CoT** sentiment for the Nasdaq 100

CoT speculators have opted to remain close to the middle for months, but the latest report shows they’re starting to move away from it taking the bias to a net long 60% on the increase in longs (by 9,854 lots) outdoing the smaller rise in shorts (by 181).

IG clients recently shifted back into majority buy territory and were a slight buy 51% yesterday, but the pullback has seen shorts get enticed into closing out and longs initiating, taking the bias out of slight long territory to 56% as of this morning.

Nasdaq 100 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.