Power struggle within the Nasdaq Composite about to come to a head?
U.S. equity index futures red; Nasdaq 100 down ~1.5%
Mortgage market index 214.1 vs 206.1 last week
Jun Housing Starts 1.353M vs 1.3M estimate
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Euro STOXX 600 index off ~0.5%
Dollar down; bitcoin, gold edge up; crude up ~1%
U.S. 10-Year Treasury yield edges up to 4.19%
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POWER STRUGGLE WITHIN THE NASDAQ COMPOSITE ABOUT TO COME TO A HEAD?
In the four trading days since the release of below expectations CPI data last Thursday morning, which has strengthened expectations for Fed rate cuts later this year, there have been some pronounced relative strength shifts in the market.
One of those has been the sudden resurgence of small caps, and with this, their outperformance vs large caps.
Indeed, the small-cap Russell 2000 .RUT/large-cap Russell 1000 .RUI ratio has just seen its biggest four-day surge since 1987. The small-cap tech PSCT.O/large-cap tech XLK.P ratio has posted its biggest four-day increase ever, going back to 2010.
With this, market breadth has gotten a boost. The NYSE .NYA and S&P 500 .SPX daily Advance/Decline lines have both thrust to record highs.
Even the beleaguered Nasdaq A/D line is getting in on the act. In fact, since hitting its record low on June 26, it has since strengthened.
Indeed, since last Wednesday's finish, the Nasdaq A/D line has risen four-straight days, even though the Composite .IXIC is trading down more than 0.7% over this period. And of note, the FANG index .NYFANG, which includes all of the Magnificent Seven stocks, is down more than 3% over this time.
The Nasdaq A/D line is now once again battling the resistance line from late 2021, which has proven to be an impenetrable barrier:
Traders will be keenly focused on whether this measure can overwhelm the resistance line, and end its pattern of declining peaks and troughs, which would have the potential to then add to the developing relative strength shifts.
Meanwhile, amid chip stock .SOX weakness, Nasdaq 100 futures NQcv1 are sharply lower in premarket trade on Wednesday.
If the A/D line fails at its resistance, and broader strength fizzles, the Composite may be especially vulnerable, especially given that mega-cap tech stocks, which have provided narrowly driven leadership, have suddenly found themselves on the back foot.
(Terence Gabriel)
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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:
CURVE STEEPENERS COULD BE THE TRUMP TREASURY TRADE - CLICK HERE
CONSIDER OWNING OPTIONS BEFORE EARNINGS - BARCLAYS - CLICK HERE
TRUMP TARIFFS COULD WIPE OUT EUROPE'S 2025 EPS GROWTH, GS FINDS - CLICK HERE
BANK OF ENGLAND'S CRUEL SUMMER - CLICK HERE
DRUGS AND CHIPS DRIVE THE STOXX - CLICK HERE
LET THE CHIPS FALL WHERE THEY MAY - CLICK HERE
GOLD GLITTERS, INFLATION JITTERS - CLICK HERE
IXICAD07172024 https://tmsnrt.rs/467sazU
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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