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The Nasdaq Takes a Breather From its Upward Climb

By:Christopher Vecchio - CFA

As the DOW continues higher

  • Both /ES and /NQ have hit fresh yearly highs in recent days, while /YM has started to break out.
  • However, earnings reports and a bump in U.S. Treasury yields have taken some steam out of the rally.
  • Volatility is expected to drop in the run up to the July Federal Reserve meeting on Wednesday, July 26.

Year-to-date price percent change chart for /ES, /NQ, /RTY, and /YM
Year-to-date price percent change chart for /ES, /NQ, /RTY, and /YM

Market update: Nasdaq 100 up +1.65% month-to-date

U.S. equity markets remain on strong technical footing, with each of /ES, /NQ, and /YM hitting fresh yearly highs in recent days. /RTY is not far behind, hovering just below the highs set in February. But markets do not move up in straight lines; even the strongest of bull markets experience ebbs and flows. Tops may or may not be forming, but it’s too soon to tell. The trend remains your friend, for now.

/ES S&P 500 Price Technical Analysis: Daily Chart (July 2022 to July 2023)

/ES S&P 500 Price Technical Analysis: Daily Chart (July 2022 to July 2023)

Last week it was noted that “the technical structure remains bullish, and further gains cannot be ruled out in the near-term.” In a sense, nothing has changed as /ES has reached a fresh yearly high at 4609.25. It remains the case that /ES has not closed below its daily 21-EMA (one month moving average) since May 25. MACD (moving average convergence/divergence) is trending higher while above its signal line, and slow stochastics are still in overbought territory. With measures of volatility still depressed (/ESU3: IV Index – 14%; IVR – +5.4) and the momentum structure holding firm, further gains cannot be ruled out in the near-term.

/NQ Nasdaq 100 Price Technical Analysis: Daily Chart (July 2022 to July 2023)

/NQ Nasdaq 100 Price Technical Analysis: Daily Chart (July 2022 to July 2023)

Like /ES, /NQ traded to fresh yearly highs this week before experiencing a pullback. /NQ’s momentum profile has weakened, however, in closing below its daily 5-EMA (one week moving average) today. Momentum indicators are starting to fade, with MACD close to issuing a sell signal (albeit above its signal line) and slow stochastics nearing a drop out of overbought territory. Nevertheless, the tech-heavy index has closed above its daily 21-EMA every session since May 5. Contextually, a return to the daily 21-EMA—which lines up neatly with the breakout point of the recent symmetrical triangle closer to 15400—can’t be ruled out in the near-term.

/RTY Russell 2000 Price Technical Analysis: Daily Chart (July 2022 to July 2023)

/RTY Russell 2000 Price Technical Analysis: Daily Chart (July 2022 to July 2023)

In our last update of /RTY, it was noted that “until /RTY drops back into the symmetrical triangle (under 1910 over the coming week), any pullback should be eyed as mere profit taking, as the broader technical structure retains its bias for an attempt to return to the yearly highs set in February.” This remains the case: the trend is your friend, for now.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multi-national 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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