Nasdaq 100: US stock market in retreat amidst rising yields, Nasdaq 100 no exception

[MongiIG]

Dive into our detailed analysis of the latest US equity market trends, where sectors across the board, including tech and consumer discretionary, face declines.

 

Source: Bloomberg

 

Indices Stock market Nasdaq United States Nasdaq-100 Bond

Monte Safieddine | Market analyst, Dubai | Publication date: Thursday 18 January 2024 07:43

US equities in retreat again

Equities faced another retreat, with all sectors finishing in the red. This downturn affected sectors like technology, communication, and consumer discretionary, with bond proxies hitting the lowest point after a rise in yields.

The Nasdaq 100, known for its tech-heavy composition, experienced a larger loss than the Dow 30, declining about 0.6%. Despite this, it remained close to recent highs, indicating potential shifts in the market narrative.

Stronger retail sales lead the data dump

A wealth of economic data emerged from the US, including:

1. Retail sales for December, which grew 0.6% month-on-month (m/m) and core sales up 0.4%, surpassing forecasts
2. Mixed trade pricing data for the same month, with import prices exceeding estimates and export prices falling below expectations, showing a decrease of 0.9% m/m
3. A slight increase in industrial production
4. The NAHB's housing market index for this month remained below 50 but improved from 37 to 44
5. Mortgage applications, as reported by the MBA, rose by 10.4%.

Further housing data is expected, along with the University of Michigan’s (UoM) preliminary consumer sentiment and inflation expectations due for release tomorrow. In Congress, optimism is growing for an agreement to avoid a partial government shutdown, although it remains a point of concern if the deadline is not extended to March.

Yields rise again, rate cut likelihoods fall back

Treasury yields ended the session higher, particularly in certain parts of the curve, while maintaining stability at the longer end. This comes alongside a disappointing 20-year bond auction. Market pricing, as per CME's FedWatch, suggests a slight inclination towards a rate cut in March following the strong retail sales data, but not by a considerable margin.

The likelihood of rates falling below 4% by year-end remains a topic of debate. Central bank discussions predominantly focused on banking capital requirements, with more commentary expected from Federal Reserve members today and tomorrow.

Nasdaq technical analysis, overview, strategies, and levels

The fall in price reached Wednesday’s 2nd Support level, followed by a partial recovery to, as of this morning, above its previous 1st Support level. This movement has favoured contrarian sell-breakouts, while also stopping out even cautious conformist buys on their second attempt. According to one calculation, there has been a negative DMI (Directional Movement Index) cross, with another imminent. This is another test for its struggling ‘bull average’ overview.

In this context, purchases at the first Support level are typically made only after a significant reversal by conformists, while contrarians anticipating sell-breakouts from this key level are likely to outperform.

 

Source: IG

IG client and CoT sentiment for the Nasdaq

Retail trader bias among IG clients is maintaining a heavy sell stance at 73%, despite the drop in price, with short-sellers expecting further downward movement. Commitment of Traders (CoT) speculators are currently in a heavy buy territory, albeit narrowly, at 65%.

 

Source: IG

Nasdaq chart with retail and institutional sentiment

 

Source: IG

 

• _{*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 7am 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.}

 

 

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