Nasdaq 100 Trade: Bracing for Nvidia’s earnings

Shaking off geopolitical escalations

Key equity indices were in for a brief scare yesterday on rising geopolitical escalations (new nuclear doctrine updated in Russia after first Ukraine use of Western missiles on Russian territory; damage to undersea cables that link Germany to Finland and Sweden), but they managed to recover and post a positive finish with the tech sector leading the charge, and heavyweight (and heaviest) Nvidia up 5% ahead of its earnings release.

It has a 7% weighting on the S&P 500, over 8% on the Nasdaq 100, and has a presence on the Dow 30 after replacing Intel earlier this month even if a smaller 2%. It’s the most valuable company boasting a market cap of over $3.6tn and has significant implications on the AI (artificial intelligence) front, and in turn for flows within this space.

There wasn’t much else to digest out of the US with mostly low-impacting data and FOMC (Federal Open Market Committee) member Schmid speaking on the “signs that both labor and product markets have come into better balance in recent months” but still “remains to be seen how much further interest rates will decline or where they might eventually settle”, and that “larger fiscal deficits will not be inflationary” but could translate into “persistently higher interest rates”.

And that’s the theme for later today with the data light and more FOMC members speaking, meaning the action might be limited until after market close when the tech giant releases its Q3 earnings figures, unless we finally find out President-elect Trump’s pick for Treasury secretary.

Nasdaq 100 Technical analysis, overview, strategies, and levels

It’s been a choppy technical overview as of late for the tech-heavy index working within a very large channel the movement within it capable of shifting technical indicators in both daily and weekly time frames depending on where price resides within it. That caused both weekly and daily technical overviews to hover between ‘bull average’ (where conformist strategies are buys and contrarians are sells) and ‘consolidation – volatile’ (where traders look to go with any sizable move within the channel/band beyond the 1^st levels but where 2^nd levels have a much better of holding).

Key technical indicators on the daily time frame aren’t as rosy as the weekly with price not above all its main short-term moving averages but above all its main long-term ones with not much of a margin for moving back beneath its 50-day MA, on the DMI (Directional Movement Index) front the -DI above the +DI (unlike the weekly where the latter is still above the former), and by one calculation an ADX (Average Directional Movement Index) reading falling out of trending territory.

It's an obvious ‘volatile’ overview for Nvidia if trading it as a single stock given the upcoming fundamental event meaning shorter-term daily and even longer-term weekly levels are far less likely to hold given the implied volatility.

But for the overall index even if weighted heavily towards tech, Nvidia and its peers has a better chance at its 2^nd but not its 1^st, and where today’s daily 1^st Resistance level nearly matches this week’s weekly 1^st Resistance level due to the price gains since the start of the week taking it further from the weekly Relative Starting Point. Any pullback will find difficulty reaching the weekly 1^st Support, but for the closer daily 1^st Support there’s the conformist sell-breakout strategies targeting the daily 2^nd Support with a stop loss of 20,556. Those who favor contrarian and going opposite can buy the 1^st Support but only after a reversal to avoid getting stopped out on any first break beneath, targeting the 1^st Resistance for profit and a stop loss of 20,378.

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

CoT speculators have opted to remain in moderate buy territory for a couple weeks now, with the latest report showing positioning among them unchanged in percentage terms at a net long 57% on increases in longs (by 7,373 lots) slightly more than the increase in shorts (by 6,058).

IG clients were heavy to the sell side at the start of last week and took last Friday’s plummet as an opportunity for shorts to close out and longs to initiate shifting the bias to a majority long 59% at the start of this week, and where consecutive price gains since have caused them to shift to the middle prior to tonight’s event.

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.