US Tech stocks have had a stellar year so far despite the unfavourable macroeconomic environment, and with further interest rate hikes on the horizon, the tech party could soon come to an end.
US Cash Market
Looking at the performance of all the major US cash Indices, it is clear that the Nasdaq 100 (purple) has been the clear forerunner this year with a staggering 38.98% gain YTD. This was followed by the S&P 500 (blue), which was up 15.82%, and the Russel 2000 (yellow), with 7.24% and the Dow Jones Industrial Average (orange), only managing a 3.44% gain YTD.
Futures Market
The NASDAQ100 Futures (CME: NQ) rally paused following Wednesday’s hawkish FOMC Minutes as the market adopted a risk-off attitude. Most Federal Reserve Board members concurred at their most recent meeting that more interest rate hikes are anticipated this year to battle inflation, even after pausing their ten-hike streak in June.
The market is wagering the likelihood of a rate hike by the Federal Reserve in July at around 90%, which has caused the NASDAQ100 Futures rally to fizzle out with a week-to-date decline of 22 basis points. Will the tech-heavy index recover its footing, given the crucial labour market data scheduled for the rest of the week?
Technical
After bouncing off the 100-day moving average at the end of June, the NASDAQ100 Futures has trended higher and is currently trading above it. At 14846.00 and 15513.75, support and resistance were established, respectively. Demand outweighed supply at the support level, which led to the recent rally and crossover above the 100-day moving average to recommence the uptrend.
Given that upside momentum supports the advance higher, the index could charge for the 15513.75 level if labour market data indicates a bearish Greenback. The index may be exposed to further upside potential if a high volume breakout over the resistance level occurs. The 15803.75 level, which forms the 23.60% Fibonacci Extension level, could be the next point of interest to the upside.
Bears may also find interest in the index at a modest premium to the current price if the resistance level holds. If bullish momentum begins to wane as the price approaches the resistance level, it could signal an imminent reversal. Bears will probably earmark the 14846.00 level as a significance level to the downside.
Summary
Two of the FOMC’s 18 members anticipated at least one more hike this year, while 12 anticipated two or more, indicating that additional tightening may be forthcoming. With the release of crucial labour market statistics and services PMIs, today’s economic data will shed further light on whether the Federal Reserve’s hawkish approach is justified. If the labour market and services sector weakens, the next level of interest to the upside will be around 15513.75.
Sources: CME, Reuters, TradingView, Koyfin
Analysts: Nkosilathi Dube and Barry Dumas
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