S&P 500, Nasdaq 100 Breakout to All-Time Highs
S&P 500, Nasdaq 100 Breakout to All-Time Highs
Volatility continues to pull back, but the resiliency of stocks in the face of the continued decline in Fed rate cut odds is the real story
- U.S. stock markets have staged a sharp rally over the past three sessions.
- The S&P 500 (/ESH4) and Nasdaq 100 (/NQH4) are slowly but surely marching to another round of fresh all-time highs.
- The Russell 2000 (/RTYH4) has rebounded meaningfully from multi-month uptrend support.
The start of the new week is off to a solid start, with each the four major U.S. equity markets trading higher.
A bit of capital rotation appears to be the driving factor on Monday, given the outperformance of small caps relative to their large cap counterparts, and moreover, the equal weighted Nasdaq 100 (+0.44%) is outperforming the market cap weighted Nasdaq 100 (+0.11%).
Resiliency remains strong
Volatility continues to pull back, but the resiliency of stocks in the face of the continued decline in Fed rate cut odds is the real story here.
After opening last week at 81%, the odds of a 25-basis-point (bps) rate cut in March are now a mere 43%. But Treasury bonds aren’t weakening on the adjustment anymore, perhaps contributing to the move higher in stocks at the start of the week.
U.S. economic data has been starting to surprise to the upside, which in a "good news is bad news" world leaves open the question if yields have stopped climbing, but for now, apparently, it’s not a concern.
Accordingly, in the short-term, the recent push higher in stocks is technically cleared to continue. Momentum has quickly turned positive across the board, and markets at fresh all-time closing highs demand respect.
/ES S&P 500 price technical analysis: daily chart (May 2023 to January 2024)
The S&P 500 (/ESH4) is higher on Monday, although it is closing off its intraday highs. What was looking like a head and shoulders pattern morphed into an inverse head and shoulders pattern, and while technically not called that at a top, it does signal continuation to the upside in the near-term; the measured move calls for a gain into 4981 before exhaustion.
Bullish momentum has reasserted itself. /ESH4 is above its daily 5-, 13-, and 21-day exponential moving average (EMA) envelope, which is in bullish sequential order. Slow stochastics are trending higher into overbought territory, while moving average convergence/divergence (MACD) is on the cusp of issuing a bullish crossover while above its signal line. With volatility declining, traders may prefer long ATM call spreads as opposed to short OTM put spreads as a way to express a bullish point of view.
/NQ Nasdaq 100 price technical analysis: daily chart (June 2023 to January 2024)
The Nasdaq 100 (/NQH4) still holds the title of the most bullish structure among all four major equity indexes.
Although it moved off of its highs, the close on Monday marks a fresh all-time closing high. /NQH4 is also above its daily 5-, 13-, and 21-EMA envelope, which is in bullish sequential order. Slow stochastics are moving even higher into overbought territory, while MACD is trending higher while above its signal line. Similar to /ESH4, with volatility declining, traders may prefer long ATM call spreads as opposed to short OTM put spreads as a way to express a bullish point of view in /NQH4.
/RTY Russell 2000 price technical analysis: daily chart (July 2023 to January 2024)
Last week it was noted that “the area around 1925/35 is critical support in the coming sessions; a break below this support would see the uptrend from the October and November 2023 swing lows broken.”
Indeed, the Russell 2000’s (/RTYH4) low close last week was 1925, and the rally since has constituted a solid defense of the uptrend. Furthermore, the downtrend from the late-December and early-January swing highs has been broken. Momentum is slowly turning the corner, but traders now have a clearly defined level of support from last week to trade around; failure below last week’s low would confirm a top.
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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