Chart Of The Day: NASDAQ Not Out Of The Woods Yet

Given that inflationary pressures are still rising and bond yields climbing, this week’s stock market rebound, especially for the technology sector, could prove to be short-lived. 

The markets have rebounded, ironically, on America’s ability to go deeper into debt, as the can was kicked further down the road. But rising yields reduce the appeal of growth stocks in the technology sector, which carry low dividend yields. 

A stronger jobs report today could paradoxically have a negative impact on stocks as it would cement expectations that the Fed will move ahead with revealing the timing and pace of reduction of its vast asset purchases program at its Nov. 3 meeting. I think it would take an enormous miss to change the Fed’s tapering plans. Most of the leading indications we have had over the past couple of weeks suggest we will get a decent jobs number to please the Fed before the central bank gently applies the brakes on QE.  

From a technical point of view, the markets are not out of the woods yet. 

The weekly chart of NASDAQ shows the index has found resistance around 15,000 after rising to re-test the back side of the broken trend line that had been in place since March 2020:

The path of least resistance, at least on this time frame, will remain to the downside for as long as we hold below this trend line or until we see a reversal pattern at lower levels.

On the daily time frame, the technical outlook appears a bit more complicated. The fact that the index has managed to break and close above the pivotal area of 14,800 (or thereabouts) means the sellers have lost some of the control they had over the short-term direction of the trend. 

So, they have some wood to chop now in order to regain full control again. A decisive break back below 14,800 could be that trigger. If that happens, we may well see a revisit of support around 14,450, and potentially lower over time.

Bullish investors will want to see that broken trend line being reclaimed before growing in confidence, especially in light of bond yields breaking higher:

Indeed, the 10-year yield touched a new multi-month high at 1.60 and could rise further in the coming weeks should inflationary pressures remain elevated or economic pointers improve further to warrant a quicker policy tightening process.

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