S&P 500 and Nasdaq 100 Stumble Amid Rotation Out of Tech

The Russell 2000 is having gains on rate-sensitive stocks, while geopolitical tensions are leaving volatility steady

• Both the S&P 500 (/ESU4) and Nasdaq 100 (/NQU4) are pulling back today as traders rotate out of tech stocks. 
• The Russell 2000 (/RTYU4) is enjoying increased technical momentum amid a rebalancing to rates-sensitive stocks. 
• Geopolitical tensions abroad (Israel-Iran-Hezbollah-Hamas; Libya oil fields closure) are doing little to bother traders at home: Volatility futures (/VXU24) is unchanged from its close on Friday. 

Market update: S&P 500 up 1.32% month-to-date 

U.S. equity markets are close to closing the book on a dramatic August. The doom and gloom in the first few days of the month has since been replaced by an uneasy sense of cautious optimism. Each of the major U.S. equity indexes are but a few percent off their yearly and all-time highs—at least in the case of the S&P 500 and Nasdaq 100.  

The pullback on today may not be worth writing home about: The equal-weighted S&P 500 (RSP) hit a new all-time high today, while the Russell 2000 is the leader on the session. Light volume at the start of the week is being accompanied by garden variety rotation out of mega cap tech and into rates-sensitive laggards. Of course, trading in the first half of this week—the last week of summer—may be mere window dressing ahead of the Nvidia (NVDA) earnings report on Wednesday after the close. 

/ES S&P 500 Price Technical Analysis: Daily Chart (August 2023 to August 2024) 

The S&P 500 (/ESU4) is trading above its daily 5-EMA (exponential moving average), daily 21-EMA and daily 34-EMA; The EMAs are in bullish sequential order. Slow stochastics are trending higher into overbought condition, a positive sign for momentum. MACD is trending higher through its signal line. Volatility has come down and remained lower (IVR: 18.7) after its spike early this month. In tandem, the momentum profile and volatility environment are beginning to favor ATM call spreads in /ESU4 (as opposed to short put spreads) to express a bullish bias. 

/NQ Nasdaq 100 Price Technical Analysis: Daily Chart (September 2023 to August 2024) 

The Nasdaq 100 (/NQU4) has a less bullish outlook than /ESU4. /NQU4 is trading below its daily 5-EMA but above its daily 21- and 34-EMAs; the daily 5-EMA has a negative slope, suggesting short-term bullish momentum has been lost. Slow stochastics have issued a bearish crossover and may be nearing an exit from overbought territory. MACD’s (moving average convergence/divergence) move through its signal line is slowing. The mixed technical picture favors range trading against the July highs and the August lows, although the volatility profile (IVR: 26.7) may not make iron condors or short strangles particularly viable. 

/RTY Russell 2000 Price Technical Analysis: Daily Chart (March to August 2024) 

The Russell 2000 (/RTYU4) holds the title of the most bullish technical setup in the short-term. /RTYU4 is trading above its daily 5-EMA, daily 21-EMA and daily 34-EMA; The EMAs are in bullish sequential order, and their respective slopes are increasing. Slow stochastics are trending higher into overbought condition, while MACD is trending higher through its signal line. Volatility remains elevated (IVR: 35.2) compared to its peers, making both iron condors and short put spreads viable strategies in the short-term. 

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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