Nasdaq 100: Futures in retreat as market participants brace for CPI

Low-impacting data, presidential debate, and bracing for CPI

There wasn’t as much to digest yesterday in terms of economic data with NFIB’s small business optimism index worsening to 91.2 from 93.7 and a clear miss when compared to 93.6 forecasts. That put the attention on other items including a softened outlook from JPMorgan regarding net interest income, Citigroup’s markets revenue likely to drop, and Goldman Sachs with its warning on trading revenue for the third quarter of this year. The Federal Reserve’s (Fed) regulatory chief spoke, and the latest “Basel Endgame” draft will involve a raising of larger banks’ capital by 9% instead of the original 19%, though based on market reaction and Wall Street might have been expecting a larger reduction. Financials as a sector was in retreat in a session where most finished on top, while lower oil prices put energy in the very bottom. The Dow 30 suffered light losses while both S&P 500 and more so the tech-heavy Nasdaq finished a bit higher.

Futures are in retreat this morning with the attention earlier on the presidential debate, yields edging lower and so too the greenback in the FX market. But market participants have their eyes set out on the significant fundamental event later today with CPI (Consumer Price Index) figures for the month of August. Expectations are year-on-year (y/y) headline growth with fall from 2.9% to 2.6% but stick to 3.2% for its core (which excludes food and energy). Month-on-month (m/m) growth for both are forecast at 0.2% again.

Nasdaq 100 Technical analysis, overview, strategies, and levels

Key technical indicators on the daily time frame are mostly neutral with price between key short and long-term daily moving averages, moving off the lower end of the Bollinger Band and closer to the middle, and an RSI (Relative Strength Index) also near the middle and away from oversold and overbought territory. Where it’s active is on the DMI (Directional Movement Index) front with the -DI above the +DI by a decent margin and by one calculation an ADX (Average Directional Movement Index) reading in trending territory. That usually translates into an unsettling price, with an overview that while is tempting to label consolidatory on mostly neutral indicators remains ‘consolidation – volatile’.

That flips the script putting breakouts in the conformist camp while reversals are reserved for contrarians. But looking at the recent past and getting intraday follow-through beyond the 1^st levels for conformist breakouts hasn’t been always easy and sometimes requiring interday trading for that additional push. Fundamental events like today’s CPI could offer further volatility and render shorter-term levels less weighty especially if the pricing data isn’t in line with expectations.

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

CoT speculators continue to slowly move away from the middle, with the latest report putting them at a majority buy 62% on a rise in long positions (by 3,413 lots) and a simultaneous reduction in shorts (by 2,271). At this stage, they aren’t too far off heavy long territory and opting to generally buy on price drops.

IG clients are also majority to the buy side, but when there are price gains longs get enticed into closing out while shorts initiate, and consecutive sessions of gains taking sentiment among them from long 63% at the start of the week (and 59% yesterday) to 57% 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.