Morning Comment: Nasdaq at key juncture as well.

Stocks repriced Friday's reaction to the NFP report yesterday

The stock market saw a bit of a decline yesterday….and when you combine that move with the decline in the S&P futures this morning…and we have a situation where the bounce that we saw in the last hour of trading on Friday has been reversed. In other words, the weakness we’ve seen so far this week is not a big deal. The market was only able to bounce strongly late on Friday because it was a very “thin” day in the market. Therefore, the sell-off we’ve seen early in the week this week is just “pricing-back-in” the sell-off that should have taken place on Friday after the stronger-than-expected employment report. That number lowered the odds that the Fed might be less aggressive during their upcoming easing program. (Even if they cut rates by 25 bps at the end of this month, Friday’s number raised questions as to whether they’ll be as aggressive in future cuts as the markets had been pricing-in before Friday.)

Powell will remove uncertainty this week, EVEN if he's vague

So with the uncertainty that Friday’s employment number has provided, it’s no surprise that the stock market has pulled back a little bit from its all-time record highs. Even if it opens where the futures are trading in the pre-market, it would only leave the market down 1.1% below its all-time highs; thus it’s not a big deal if we continue to see a little more weakness as we wait for Chairman Powell’s testimony in front of Congress tomorrow. The good news is that the uncertainty I'm talking about will be resolved very quickly. As one pundit said yesterday, if Mr. Powell is vague with his answers, investors will take that as meaning that the Fed approves of the current expectations…which states that the Fed will be pretty aggressive in cutting rates. Therefore, even if Mr. Powell tries to be ambiguous, there shouldn’t be a whole lot of uncertainty surrounding this issue by the end of the week.

What I'm saying is that there is a lot of uncertainty in the market place right now, but thankfully, the uncertainty surrounding the Fed shouldn’t be with us very long. However, it still means that anything I say about the short-term developments in the market place could become moot very quickly. With this in mind, I thought we’d take a look at the longer-term chart on the Nasdaq Composite Index.

DJIA/S&P 500/Russell 2000 at key technical levels

As a set up for this look at the Nasdaq, I’d just highlight that we’ve talked a lot recently about the S&P 500 and DJIA…and how they have both made new record highs several times over the past 18 months. However each time they have only made slight new highs…and then they rolled back over in a reasonably consequential manner. Therefore, those indexes are at a critical juncture. If they can finally break “meaningfully” above their old highs, it should give the market some very nice upside momentum as we move through the rest of the summer. HOWEVER, if they fail for the fourth time, investors could bail on the market rather quickly………..I have also highlighted that the Russell 2000 Index remains below its early May highs and well below its 2018 all-time highs, so whether or not it can play catch-up soon should be important for the broad market as well.

However, I have not talked much about the Nasdaq Composite index (or the NDX Nasdaq 100 index…whose chart looks virtually the same). The chart on the Nasdaq is some-what different, but it is still rather similar to the DJIA and S&P in several key ways…and thus the Nasdaq stands at a critical juncture on a technical basis as well.

Nasdaq testing an important "double-top" level as well.

First of all, unlike the other major averages, the Nasdaq DID break above its early 2018 highs in a meaningful way in September of last year…when it rose 8% above its 1st quarter earnings (while the DJIA & SPX indexes moved less than 2% above their old highs). This break-out move was led by the sharp rally in the FAANG stocks (and a couple of other high flyers like NVDA)…..However, this is where the differences end. After making its new record high in late August/early September of last year, the next rally (during the first four months of this year) only took it back above those 2018 highs by a tiny amount (by an even smaller amount than the S&P).

So what I'm saying is that instead of a “triple top” (which aren’t even suppose to exist in technical analysis anyway), the Nasdaq composite is testing a major “double-top” high. In other words, the DJIA, S&P 500, AND the Nasdaq composite are all testing their highs from April & September of this year…it’s just that the first two indexes are also testing a third top.

No matter how you slice it, the market is at a critical technical juncture

Okay….as you can see (and as I readily admit)…this view of the Nasdaq is not a whole lot different than what I’ve been highlighting about the DJIA and (especially) the S&P for some time now. However, given that there’s not a lot I can add this morning…in front of Chairman Powell’s testimony in front of Congress tomorrow...I thought this would be a good opportunity round-out the details of the technical picture on all of the major U.S. stock averages…….….No matter how you slice it, the stock market stands at an important juncture on a technical basis. So the next meaningful move it takes over the next week or two…should be critical to how the market acts through the rest of the third quarter.

Posted to The Maley Report on Jul 09, 2019 — 8:07 AM
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