Nasdaq 100: Tech struggles on rotation and semiconductor woes

(Please note that pricing is taken from the US Tech 100 market available on IG’s trading app and platform)

Tech in retreat, semiconductor plummet, and FOMC members speak

It was another session where the Dow 30 outperformed among the large caps as it breached 41K, this time around alone in enjoying gains as the small-cap Russell 2000 and S&P MidCap 400 both were in retreat. But the losses for the latter two weren’t anywhere as bad as the tech-heavy Nasdaq 100, which fell back beneath 20,000. US sector performance showed heavy losses for tech which was in the very bottom with communication and consumer discretionary suffering as well, while on top it was consumer staples and energy. Semiconductors were notably hit on a Bloomberg News report that the Biden administration may impose even stricter restrictions when it comes to the sector’s exports to China. There’s also been the theme of rotation, sending investors out of tech as of late.

Elsewhere there were a few FOMC (Federal Open Market Committee) members speaking: Waller who believes "the time to lower the policy rate is drawing closer", Williams that they'll "learn a lot between July and September", and Barkin "very encouraged" on inflation. Market pricing (CME’s FedWatch) for a September rate cut out of the Federal Reserve (Fed) is nearly fully priced in. As for the Fed’s Beige Book, its survey showed expectations are "for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation.”

Generally light data, FOMC members speaking, and earnings from Netflix

It’s relatively calm in terms of items on offer out of the US today, the weekly claims and Philly Fed’s manufacturing index a bit later, a couple FOMC members speaking after that, and a couple more speaking tomorrow. As for earnings among the tech-heavy index’s components, Netflix is expected to release its figures today.

Nasdaq 100 Technical analysis, overview, strategies, and levels

The technical overview has struggled significantly as of late, though not so much for conformists who should only buy after a significant reversal off the 1^st Support level as is the case under a ‘bull average’ overview, which is the technical overview in both daily and weekly time frames. That helps avoid initiating a position on a move lower and in turn avoids getting stopped out should price experience downside follow through as was the case yesterday. Looking at the daily has been more painful for the bulls, and where the key technical indicators have shifted on the retreat off the record highs experienced only late last week.

We’re working with a very wide channel the movement within it capable of shifting key technical indicators on the daily time frame with relative ease compared to the weekly, and at times it’ll feel ‘consolidation – volatile’ where breakout strategies are conformists and reversals are usually reserved for contrarians.

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

IG clients aren’t complaining when it comes to a pullback in price in the Nasdaq 100 given they were majority sell prior to the pullback, and since yesterday have shifted from short 59% to majority buy for the first time since May. CoT speculators are majority to the buy side but not by a significant margin having dropped to just 53% in the most recent report release due to a drop in long positions (by 4,078 lots) and a simultaneous increase in shorts (by 1,600).

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 the start of this week for the outer circle. Inner circle is from the start of last week.
**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.